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Green Paper on Public Sector Procurement Reform in South AfricaAn initiative of
the Ministry of Finance and the Ministry of Public Works
April 1997
TABLE OF CONTENTS
Message from the Minister of Finance
Message from the Minister of Public Works
Procurement Reform: The Process
Executive Summary
1. Introduction
2. Achieving good governance in procurement
3. Achieving socio-economic objectives through procurement
4. Specific Aspects of Procurement Reform
5. Conclusions: The way forward
Affirmative Procurement in brief
The Pillars of Procurement Reform
Invitation to comment
Aknowledgements
MESSAGE FROM THE MINISTER OF FINANCE
As the largest buyer in the country, government has a
responsibility to ensure that its procurement policy supports its overall economic
objectives, and serves as an instrument for attaining those objectives.
One of the key elements in Government's strategy for
employment creation and income generation is the promotion of small, medium and micro
enterprises (SMME's). In the past, the tendering system favoured larger, established
companies, and it was very difficult (if not impossible) for newly established businesses
to enter the public tendering system.
Government therefore embarked on a reform process to make
the tendering system more easily accessible to small, medium and micro enterprises. This
process has resulted in a Green Paper on Public Procurement Reform.
At the same time, this Green Paper is a step towards
greater policy co-ordination across the different levels and departments of government.
This Green Paper is a discussion document which contains
various proposals aimed at achieving objectives of good governance, developing and
utilising the country's human resources potential to the full, and encouraging a well
developed and competitive business sector. It is being released so that anyone who so
wishes can forward their comments to the Department.
I wish to record my appreciation to the Department of
Public Works, and also to the World Bank for financial assistance and guidance with the
reform process and preparation of this Green Paper.
MESSAGE FROM THE MINISTER OF PUBLIC
WORKS
The development of this Green Paper represents a
significant milestone in the transformation of public sector procurement in South Africa.
The appropriate orientation of public sector procurement
would enable the State to use its purchasing power to attain specified socio-economic
objectives. Within the South African context, public sector procurement can make a
critical contribution to the transformation and democratisation of South African society.
In striving for the above, Government must also ensure that such a procurement policy
subscribes to international best practice and reinforces the principles of good
governance.
This Green Paper attempts to address these issues, and
proposes strategies that blend international best practise with South African
specificities . The presentation of new concepts such as an affirmative procurement
policy, life cycle costing, value for money and appropriate risk management strategies
indicate Government's commitment to the development of a procurement system that responds
to the needs of South African society.
The development of this Green Paper has also highlighted
the creative potential that is unleashed when government departments operate in a
collaborative fashion.
The proposals contained in this Paper have wide ranging and
far reaching implications for all stakeholders engaging in the public sector procurement
process. I therefore urge all interested parties to consider the issues raised in the
Green Paper so that our collective inputs contribute to a procurement system that all
South Africans can be proud of.
JEFF RADEBE, MP
MINISTER OF PUBLIC WORKS
PROCUREMENT
REFORM: THE PROCESS
The process of procurement reform commenced with
interaction within Government.
On 24 January 1995, a Government Forum comprising
representatives from various State and Provincial user departments was established in
order to arrive at a consensus position as to what restructuring is necessary and what is
possible in the short and medium term.
Since the initiation of the procurement reform process,
certain documents have been released which impact on the procurement reform proposals, and
influence some of the recommendations. These include:
- The new constitution.
- Growth, Employment and Redistribution: a macro-economic
strategy.
- National Small Business Enabling Act
The proposals which have been developed in this Green Paper
have been based on aims and objectives which have been broadly agreed to by various
National and Provincial organs of State. However, consultation with all stakeholders in
the process is of primary concern to the Government and, as such, a Green Paper on
procurement reform has been developed as a discussion document on the proposals and
principles which underlie procurement reform.
The Government hopes that the release of its preliminary
policy and principle statements will draw the constructive discussion and input of all
stakeholders and interested parties in order to facilitate the development of the best
possible procurement policy.
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EXECUTIVE SUMMARY
The Government of South Africa is committed to good
governance and the elevation of previously marginalised communities. Total procurement by
the different Organs of State is estimated at R56 billion. This amount calls for strict
control through good financial governance.
The Constitution of our country prescribes that procurement
for any organ of State should be dealt with through a system that is fair, competitive,
transparent and cost effective. The Constitution also allows for the implementation of
procurement policies providing for categories of preference in the allocation of contracts
and the protection, or advancement, of persons, or categories of persons, disadvantaged by
unfair discrimination. It is therefore clear that the public sector procurement system can
be used to attain certain socio-economic objectives. This will, however, not be achieved
without adhering to sound financial management, which inter alia includes the principles
of value for money, good financial control, eliminating and countering corruption and
ensuring that all contractors have a "good standing" insofar as their tax and
service charge obligations are concerned.
The Government realises the importance of the small, medium
and micro enterprises (SMME's) as part of the macro economic development of South Africa.
In the past, the tendering system favoured the larger and more established businesses, and
it was very difficult for any new and upcoming tenderer to enter into the public sector
procurement system. The Ministries of Finance and Public Works embarked on the reform of
the public sector procurement system to make the tendering system easily accessible to the
SMME's. The emphasis is on the development and stimulation of the SMME sector and using
the procurement system as an instrument to achieve certain socio-economic objectives
without forfeiting the principles of good financial management.
Good Governance
Proposals on good governance include aspects such as value
for money, good financial control, countering corruption, meeting tax and service charge
obligations and adhering to prescribed labour practices.
A National Procurement Framework needs to be drafted to
establish uniformity in tender procedures, policies and control measures. Such a framework
should be administered by a Procurement Compliance Office. It is the intention of the
Procurement Compliance Office to be pro-active in nature and to establish preventative and
control measures on a regular basis.
Socio-Economic Objectives
Socio-economic objectives through the procurement system
includes access to tendering information and the simplification of tender documents,
breakout procurement, awarding of tenders in terms of a development objective mechanism,
drafting of an affirmative SMME participation programme, promoting employment-intensive
practices, affirming marginalised sectors of society in construction projects and the
development of an affirmative procurement policy.
Other aspects which are dealt with, include inter alia
international competition, stimulation of local economies, labour issues, guarantees and
training. Emphasis is also laid upon the development of human resources.
The Green Paper, at this stage, contains proposals which
should not be regarded as policy. The Green Paper is published for comments and the
Ministries of Finance and Public Works welcome any comment, criticism or concern on the
proposals made. The objective is to establish a public sector procurement system that will
meet the needs of the people of South Africa and will ensure development towards a better
South Africa for all its citizens.
1. INTRODUCTION
1.1 Background
The Government's aim is to transform the public procurement
process in order to achieve its socio-economic objectives within the ambit of good
governance.
The procurement system in South Africa needs to be changed
in order to face the challenges presented by changes in both the local and international
environments.
National, Provincial and Local government departments in
South Africa have an enormous collective buying power. According to various analysts, the
Total Consolidated General Government Procurement is estimated to amount to R56 billion
for the 1995/96 financial year, at current prices.
This amount constitutes approximately 13% of Gross Domestic
Product and represents some 30% of all government expenditure.
The estimated Consolidated General Government Procurement
spending may be categorised as follows:
- Central Government R22 billion (39%)
- Provincial Government R25,5 billion (45%)
- Local Authorities R8,5 billion (16%)
Extra-budgetary institutions increase these amounts by a
further R6 billion.
There are two components to this spending:
- Goods and services - which account for approximately R44
billion (79%)
- Capital assets - which account for an estimated R12 billion
(21%)
Public sector procurement has a major impact on the South
African macro economy, both in terms of consumption and investment spending. As such,
public sector procurement can be used as a tool by government to achieve economic ideals,
including certain socio-economic objectives. At the same time, an effective and efficient
procurement system will permit government to deliver the quality and quantity of services
demanded by its new constituency in accordance with Reconstruction and Development
Programme principles and other policy objectives.
A fundamental requirement for any new procurement policy is
that it should be in line with the national economic growth strategy with the acceptance
that the country is now operating in a changed environment both locally and
internationally.
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1.2 Procurement Reform
The Ministry of Finance, in conjunction with the Ministry
of Public Works , has drawn up this Green Paper on Procurement Reform to initiate the
process of reform. The reformed procurement process needs to be responsive to the needs of
government policy and needs to adopt best practices in all its activities.
This document makes a number of proposals for the reform of
the procurement process. At the heart of these proposals are four key principles.
First it is a reality that previously the public tendering
system favoured the established and larger businesses, and it was very difficult for any
newcomer to enter into the public sector procurement system. The existence and importance
of the small, medium and micro enterprises were ignored in the past. The Government
realises the importance of this marginalised sector of the society and will use the
procurement system to make the process easily accessible for the new and upcoming
businesses and eliminate the injustices of the past. However, good value for money cannot
and will not be negated. According to our Constitution, the procurement system must be
fair, competitive, transparent and cost effective. Our Constitution also allows the
implementation of categories of preference in the allocation of contracts, as well as the
protection of advancement of persons, or categories of persons, disadvantaged by unfair
discrimination. It is therefore clear that the advancement of marginalised sectors of
society and achieving certain socio-economic objectives, can be included in the concept of
whole life cost and value-for-money.
Secondly, one of the major objectives of the Government is
to attain and maintain good governance. This includes good and sound financial control.
With an estimated expenditure of approximately R56 billion on public sector procurement,
good financial control is of the utmost importance. Decision making within national
regulations and guidelines will be delegated to accounting officers who will be
responsible and accountable for all procurement expenditure incurred within their line of
responsibility.
Third, corruption will not be tolerated within the
Government services and within the country as a whole. Within the public sector
procurement system, emphasis will be placed upon measures to eliminate and counter any
form of corruption.
Finally, any principal doing business with the public
sector aims to make a profit. It cannot, under any circumstances, be justified that anyone
doing business with the public sector should do so when he/she has not met his/her tax
obligations. Contractors should at least have a status of "good standing"
insofar as their tax and service charge obligations are concerned. This means that as part
of financial control within public sector procurement, measures will be implemented to
ensure that anyone doing business with an organ of State, has met his/her tax and service
charge obligations.
In this Green Paper on Public Sector Procurement Reform,
reform is dealt with under the following two headings, namely:
- Socio-economic objectives;
- Achieving good governance in procurement.
1.3 Vision
To achieve the ideals of good governance and to address the
changed environment, some fundamental institutional reform is necessary. There is a need
to develop professionalism in departments by providing best practice guidance to enable
departments to become more proficient in procurement and to provide organisational
efficiency. To this end, the following issues are dealt with in the document:
- The need for value for money
- The need to eliminate corruption in Procurement Systems
- The need for contractors to have "good standing"
insofar as their tax and service charge obligations are concerned
- Implementation of systems of control and accountability
- Uniformity in procedures, policies, documentation and
contract options
- Effective monitoring and reporting
Institutional and economic reform lies at the root of the
public procurement transformation process.
- Skills development of key procurement personnel
- Specific areas of procurement excellence such as Information
Technology (IT)
- Value for money improvements
- Integrated procurement processes to focus on whole life
costs and benefits
- Total Quality Management (TQM)
- Bench-marking procedures and performance to world class
standards
- Networking of procurement departments (information sharing)
The implementation of the above will involve major cultural
changes and considerable effort as is often necessary during a period of transition. The
strategies and policies to be put in place should ensure that departments will be
successful in managing this change and thereby develop the full potential that effective
procurement can provide over the many areas of government activity.
The procurement system should become an instrument of
government policy in the manner in which the public sector does business with the private
sector.
There is in addition a challenge to stimulate economic
growth by economically empowering previously marginalised sectors of our society. The
Reconstruction and Development Programme's aims and ideals provide the ideological
backdrop to proposals for transforming the process of public procurement.
1.4 Reform Objectives
1.4.1. Socio-economic objectives
- To seek value for money on behalf of all tax payers.
- To eliminate corruption in the procurement process.
- To make the public procurement process accessible to all by
simplifying the process, and by encouraging fairness and transparency.
- To encourage greater competition in the public procurement
process through the creation of an enabling environment for small, medium and micro
enterprises while retaining quality and standards.
- To support participation of a broadened range of enterprises
with appropriate inland revenue registration and acceptable labour practices in order to
ensure sustainability.
- To revise the concept of value-for-money in the procurement
process in terms of the new objectives which are to be applied.
- To set out targeting policies in order to create
opportunities for the broadest possible participation in the public procurement process.
- To increase the volume of work available to the poor and
enhance the income generation of marginalised sectors of society.
1.4.2. Good Governance
- To promote effective and efficient procurement practices and
systems to enable government to timeously deliver the quantity and quality of services
demanded by its constituents.
- To achieve continuing improvement in value for money, based
on whole life cost and quality.
- To enhance the competitiveness of suppliers through the
development of world class procurement systems and practices.
- To ensure that control and accountability is maintained
through comprehensive auditing.
- To achieve a uniform procurement system with standardised
tendering procedures, policies and contract documentation for implementation at national
and regional level.
- To ensure that public sector procurement complies with the
provisions of the constitution.
- To ensure consensus within government on the reform of the
public procurement process, and to encourage the adoption of the reformed process by all
public sector procurement agencies.
2. ACHIEVING GOOD GOVERNANCE IN PROCUREMENT
Contents
| In order to achieve the ideals of good
governance and to address the changed environment, some fundamental institutional reform
will have to be implemented; such reform needs to promote efficient and effective
procurement systems and practices which enable government to deliver the required quality
and quantity of service to its constituents.
The
establishment of uniformity in procedures, policies, documentation and contract options
and the implementation of sound systems of control and accountability need to form the
cornerstone of institutional reform.
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2.1. Objectives
- To promote effective and efficient procurement practices and
systems to enable government to timeously deliver the quantity and quality of services
demanded by its constituents.
- To achieve continuing improvement in value for money, based
on whole life cost and quality.
- To enhance the competitiveness of suppliers through the
development of world class procurement systems and practices.
- To ensure that control and accountability is maintained
through comprehensive auditing .
- To achieve a uniform procurement system with standardised
tendering procedures, policies and contract documentation for implementation at national
and regional level.
- To ensure that public sector procurement complies with the
provisions of the constitution.
- To ensure consensus within government on the reform of the
public procurement process, and to encourage the adoption of the reformed process by all
public sector procurement agencies.
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2.2. MEETING THE CHALLENGES
2.2.1. Background
Government's overall strategy for procurement should be to
achieve value for money and to develop world class procurement systems and practices.
The goal of continuous improvement in public sector
procurement requires a clear lead and strong commitment through sound management
practices. This, together with the basic values and principles governing public
administration as enshrined in the constitution, provides a framework to develop sound
organisational and institutional arrangements that will result in a public procurement
system which becomes more efficient and effective.
The function of government is to govern effectively by
adopting best practice in all its activities, rather than to be reliant on consensus
decisions, in order to ensure the long term success of its delivery programme. Clearly,
the public must be encouraged to participate in policy making but thereafter the
government must take responsibility and act in terms of its mandate.
From an international perspective, South Africa is now an
acknowledged player in the global economy, although still recovering from the after
effects of world isolation. To succeed, South African businesses need to be competitive in
line with the rest of the world. In addition, the country is required to comply with
international agreements, standards and procedures relating to procurement matters.
International tendering will also require acceptable documentation and systems that are
compatible world wide. Over and above this, the rules of accountability have taken on a
double dimension with the trend towards international agreements laying down rules for
public procurement: government officials may find themselves accountable for acts and
omissions not only under their own national procurement regulations but also under
international agreements guaranteeing fair and equal treatment of foreign participants in
the procurement process.
Public procurement procedures in most countries are coming
under international influence through the conditions attached by international funding
agencies to procurement under their various loans and grants. Aid agencies generally
reserve for themselves the right to review the procurement process for individual
contracts as a condition for disbursement. Those same agencies are also paying more and
more attention to public management in general. Watchwords such as 'governance' and
'implementation culture' have come to be associated with concern over the standard of
public administration and with efforts to combat corruption.
Accordingly, the Government's overall strategy for
procurement should be to achieve continuing improvement in value for money, based on whole
life cost and quality, and to enhance the competitiveness of suppliers through the
development of world class procurement systems and practices.
| Success in the more open economic environment
requires consistent
and integrated policies.
World competitiveness nowadays depends as much on
comparative advantage in the public policy area as it relies on technology, human
resources and physical capital.
Government must play this clear policy co-ordination role.
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2.2.2. Discussion
Efficiency and effectiveness in public procurement is about
setting new standards.
The quest for efficiency and effectiveness in public
procurement is about setting new standards. An integrated approach of effective
administration and the adoption of best practice principles form the underlying theme of
good governance.
Organs of State should be best practice clients and
intelligent customers. Amongst other things, they should be able to:
- Understand and clearly specify their requirements
- Choose between contract options
- Understand the supply market
- Identify and manage risk
- Manage changes to requirements
- Understand and apply the principles of targeted procurement
- Set and monitor targets in respect of development objectives
- Function in an ethical and transparent manner.
Important specific aspects involve the following:
i. Training and skills development
Little change will be achieved without adequate training. A
structured programme to impart skills development and professionalism should therefore be
introduced for those with procurement responsibilities.
Consultants specialising in the management of change
processes should be appointed to advise certain organs of State on how to reshape their
procurement organisation and processes. The intention is to use these organs of State as a
pilot for others to adopt successful change programmes themselves.
Procurement staff will require a mix of three sorts of
training, depending upon the degree to which they are involved in procurement.
- Basic procurement training
- Training in personal and general management skills
- More advanced training in specialist procurement skills
ii. Partnering
There should be a continuing emphasis on fair competition.
However, it is acknowledged that competition must be coupled with constructive and
co-operative relationships with suppliers. Accordingly, there is a great deal of current
interest in partnering or partnership sourcing. The term refers to arrangements under
which customers and suppliers decide to collaborate closely in order to deliver
requirements such as cost reduction, improved quality or innovative solutions, rather than
to conduct all their business at arms length.
iii. Benchmarking
Benchmarking is, increasingly, being recognised as a
powerful tool to enhance performance, improve processes and act as a catalyst for change.
Studies often reveal performance differences of several orders of magnitude which can be
used to improve organisational efficiency in a motivating and rewarding manner. It can be
used by organs of State, to compare their procurement processes and performance against
the best there is to be found and to improve their own practices to match world class
standards. As a result it aids and empowers employees to contribute to, and manage the
change process with the added advantage of being able to constantly challenge the way
things are done. However, best practice is not static and therefore development should be
used as the basis for continuous improvement. Accordingly, benchmarking can play a
significant role in strategy formulation, service delivery, process innovation and as a
catalyst for change. In this way, departments can achieve a continuing, rather than
static, programme of improvement.
iv. Information-sharing and collaboration
Collectively, procurement personnel in organs of State
possess a great deal of knowledge and experience. Ensuring that this is fully shared
within and between organs of State will be of major benefit to all. As few procurement
problems are unique, solutions developed in isolation will, at best, involve duplication
and, at worst, mean failure to secure the best available solution. Simple user-friendly
information systems can be developed to facilitate active exchange of information.
v. Co-operation with suppliers
Relationships with suppliers should combine competition
with co-operation. Government must attach the greatest importance to honesty, fairness and
even-handedness in their relations with suppliers and to avoid conflicts of interest. To
support ethical standards, the use of procurement procedures, which are proof against
fraud and corruption should be of the highest importance. Tendering is burdensome, and
costly for suppliers. Organs of State should seek to ease these burdens, in particular by
avoiding lengthy and over-prescriptive specifications of requirements, by not asking
suppliers to provide information unless it is absolutely necessary and, wherever
justifiable, by inviting only a sufficient number of them to tender to provide genuine
competition.
vi. Change management
Changes to requirements present a major management
challenge. If poorly handled, they may lead to a significant increase in costs and a loss
in quality of service. Where end-users put forward changes in requirements in the middle
of a contract, the first task is to test carefully whether the new requirements are really
necessary. They must understand clearly the cost and other implications of change. Organs
of State should seek to establish relationships with suppliers in which both sides are
willing to share the risks and potential benefits arising from changes and circumstances.
vii. Constitutional Provisions
A new procurement policy should comply and be consistent
with the constitutional provisions. In this regard, the Constitution under the section on
Procurement reinforces the principle of good governance and states: when an organ of State
in the national, provincial or local sphere of government, or any other institution
identified in national legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent, competitive and
cost-effective.
In addition, good governance is further reinforced under
the section on public administration which emphasises the following principles:
- A high standard of professional ethics must be promoted and
maintained
- Efficient, economic and effective use of resources must be
promoted
- Public administration must be development oriented
- Services must be provided impartially, fairly, equitably and
without bias
- Peoples' needs must be responded to, and the public must be
encouraged to participate in policy-making
- Public administration must be accountable
- Transparency must be fostered by providing the public with
timely, accessible and accurate information
- Good human-resource management and career-development
practices to maximise human potential, must be cultivated
- Public administration must be broadly representative of the
South African people, with employment and personnel management practices based on ability,
objectivity, fairness and the need to redress the imbalances of the past to achieve broad
representation.
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Existing and future procurement procedures, including those
relating to the purchase and sale of property, disposal of moveable assets and the
procurement and sale of fixed assets needs to be reviewed to ensure compliance with the
provision of the constitution.
viii. Knowing the supply market
Organs of State should not act in ways which damage
competition, for instance by assisting the growth of monopolies or cartels. They should
weigh the short term gain against the long term risk to both sides in situations where
either party can become over dependent on the other. An active programme to encourage
suppliers to enter new markets should be promoted.
Keeping the market informed about opportunities and
briefing suppliers about procurement decisions can have a positive impact on future
contracts. A good understanding of the supply market, can provide an opportunity to
monitor and control quality.
The establishment of databases of suppliers, services
providers and contractors, which cover the markets within which such firms are operating,
will enable best practice choices to be made when procurement strategies are decided upon.
This is particularly important when implementing socio-economic policies and developing
partnerships with foreign firms.
ix. Integrated Procurement
The procurement process must be seen as an integrated whole
in order to maximise the opportunities for improving quality and reducing whole life
costs. Organs of State need to look at the procurement process, from the initial
identification of requirements to the point at which the acquisition reaches the end of
its life. The procurement process should be broken down into logical steps that can be
followed successfully with a minimum of management intervention and duplication.
Goods not wholly consumed in the course of use will have to
be disposed of when they are no longer needed. Some assets may have a residual or resale
value; for others there may be a cost, including an environmental cost, in respect of
their disposal. All there factors should be taken into account in an integrated
procurement process.
The concept of 'Total Cost of Ownership' must be introduced
and emphasized. This cost takes into account all the costs including acquisition,
personnel training, operation, maintenance, modification and disposal. As such, 'Total
Cost of Ownership' should be used as a tool for decision making. With some acquisitions,
particularly, capital assets, the greater part of the whole life cost is inevitably
incurred after purchase. Procurement decision making must shift from 'Price Focus' to
'Total Cost Focus'.
x. Purchasing Management
Efficient performance of the purchasing management function
can be of considerable benefit to the State by ensuring that the correct goods of the
appropriate quality are purchased and received in the correct quantities, at the right
time and at the right price. To ensure that the purchasing management function is
effectively carried out, it has to be well managed, just like all the other management
functions of good governance.
Purchasing management comprises the planning, organisation
and co-ordination, as well as the direction and monitoring, of all the activities that are
bound up with the procurement of goods. The most important purchasing management
activities that have to be performed are:
- the selection of appropriate goods
- the determination of appropriate quality
- the determination of the quantities to be purchased
- inventory control
- the selection of the supplier
- the determination of purchase prices
- the timing of purchase delivery
Efficient purchasing ensures that 'out of stock' situations
do not arise, that State finances are not unnecessarily tied up in large inventories, that
the minimum amount of stock is written off or cleared and that good relations are
maintained with suppliers. Careful management of this function makes it possible to obtain
an optimum combination of price, quality, time, place and quantity.
High inventory levels can lead to additional costs and
risks including those associated with storage. It is essential for procurement departments
to establish optimum bin levels. This can be achieved by utilising effective purchasing
systems which embrace appropriate control systems.
xi. Corruption
Corruption is morally and economically damaging. It
jeopardises the procurement process, is always unfair, and often criminal. It saps money
from much needed development projects, and adversely affects their quality. Corruption,
apart from permitting wasteful procurement to occur, undermines values of society, breeds
cynicism and demeans the individuals involved. Accordingly, there should be continuing
vigilance in the procurement system to prevent and to react to the blight of corruption.
In particular, strong action will be taken against
practices such as ringforming, fronting, tax evasion, and fraudulent preference claims.
Organs of State should either impose sanctions on contractors in the form of penalties or
cancellation of contracts, or recover all costs, losses or damages incurred or sustained.
Good financial control is dependent upon an honest and competent Public Service.
Accordingly, accounting officers must be responsible and accountable for all expenditures
incurred and strong action should be taken against civil servants who misuse their
authority and are involved in corrupt practices.
xii. Tax Morality
A culture of tax morality needs to be developed amongst
suppliers, service providers and contractors. All businesses have various tax, levy and
service charge obligations; some meet these, others don't. Those businesses that fail to
meet all these obligations, apart from denying organs of State revenue, have unfair
competitive advantages over their competitors. This situation is unacceptable. It is
imperative that measures be put in place to ensure that those who are participating in
public sector procurement have "good standing" insofar as their tax and service
charge obligations are concerned.
The reformed Procurement system should ensure that all
suppliers, service providers and contractors declare in their tender submissions that they
have fulfilled all their tax, service charge and levy obligations, or that arrangements
have been made with the South Africa Revenue Service or relevant authorities to fulfill
these obligations. Should it be found that the declaration is false, organs of State
should, in addition to any other remedy they may have;
- cancel the contract and claim any damages which they may
suffer by having to make less favourable arrangements after such cancellation; or
- impose severe penalties.
Information supplied in Tender documents should be
disclosed to the South Africa Revenue Service or any other statutory body collecting
taxes. Arrangements must be made with the South Africa Revenue Service to implement the
necessary control measures.
xiii. Labour Practices
All suppliers, service providers and contractors are
compelled by law to comply with provisions of various pieces of legislation, such as the
Labour Relations Act; the Workmen's Compensation Act; Unemployment Insurance Fund and
Occupational Health and Safety Act. There is, however, a need to promote better practices
in respect of human resource development, employment equity, health and safety, and
conditions of employment amongst suppliers, service providers and contractors. Various
studies have argued that there is a dividend in respect of productivity and efficiency
associated with good employment practices. Those businesses who do not adhere to their
labour obligations, apart from exploiting their employees, have unfair competitive
advantages over their competitors. This situation is unacceptable. Measures need to be put
in place to ensure that those who are participating in public sector procurement adhere to
labour standards. Best employment practices need to be promoted and recognised.
2.2.3. Principles and proposals
The strategy for procurement should be to achieve
continuing improvement in value for money based on whole life cost and quality and to
enhance the competitiveness of suppliers, through the development of world class
professional procurement systems and practices. Within this strategy organs of State for
their part, should do their best in all dealings with suppliers and potential suppliers:
- to preserve the highest standards of honesty, integrity,
impartiality and objectivity;
- to be fair, efficient, firm and courteous;
- to achieve the highest professional standards in the award
of contracts, so as to maximise value for money while conforming to international
obligations;
- to provide clear specifications of requirements which
encourage innovation and refer, where appropriate, to relevant technical and other
standards;
- to make available as much information as suppliers need to
respond to the tendering process, and to define and publicise procurement contact points;
- to manage the tendering process so as to avoid / minimise
the burdens on suppliers, while preserving genuine competition and avoiding
discrimination;
- to make available the broad criteria intended for the
evaluation of tenders, to evaluate tenders objectively, and to notify the outcome
promptly;
- within the bounds of commercial confidentiality, to debrief
winners and losers on the outcome of the tendering process, so as to facilitate better
performance on future occasions;
- to achieve the highest professional standards in the
management of contracts;
- to pay promptly for work done in accordance with contracts
made; and
- to respond promptly, courteously and efficiently to
suggestions, enquiries and complaints.
Organs of State should look to suppliers, service providers
and contractors in turn to observe similar standards of integrity, professionalism,
co-operation, courtesy, competence and efficiency without compromising labour standards.
Furthermore, such enterprises should be required to demonstrate "good standing"
as far as all their tax, levy and service charge obligations are concerned as a
prerequisite to doing business with organs of State. Failure to meet such obligations
should be sufficient grounds for exclusion from participation in public sector
procurement. All procurement data bases reflecting contracting activities should be made
accessible to officials of the Receiver of Revenue.
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2.3. UNIFORMITY IN TENDER PROCEDURES,
POLICIES AND CONTROL MEASURES
2.3.1 Description
Tender Boards in South Africa have the power to conclude
agreements, invite offers, determine the manner in which, and the conditions under which,
offers must be made; and to amend or cancel the concluded agreements.
Organs of the State may only procure goods and services
under delegated authority from these Boards.
Internationally, departments are responsible for their
own procurement and Tender Boards, if present, perform an advisory and policy role without
being directly involved in the award of tenders.
The present procurement system is maintained through a
formal tendering system. Contracts are awarded by tender boards comprising government
officials and non-government persons which are presently established in terms of National
and Provincial Acts. The State Tender Board for example, enjoys certain powers in terms of
the State Tender Board Act, including the power to conclude agreements, invite offers,
determine the manner in which, and the conditions under which offers must be made, to
inspect and test supplies and services offered and to amend or cancel the concluded
agreements. The responsibility to appoint members to the State Tender Board rests with the
Minister of Finance.
The establishment and purpose of Tender Boards is
traditionally seen as an effort to ensure sound decision making in a fair and evenhanded
manner and as a means to ensure that fraudulent practices are minimised. Their prime
function should be the overseeing of procurement in order to ensure that the procurement
of goods, services and works is conducted in a fair, equitable and transparent manner in
accordance with the prevailing legislation and within the parameters of government policy.
Tender Boards are, as such, concerned with the handling of tenders whereas consumer
departments are concerned with the administration of contracts which have been awarded.
As the law stands at present, the State Tender Board Act
does not supersede the Provincial Tender Board Acts. Provincial Tender Boards have the
authority to determine their own conditions under which offers are to be made. It is
therefore inevitable that this results in different tendering cultures occurring
throughout the country and different interpretations of what constitutes procurement
reform, affirmative action, stimulation of local economies and the like. Co-ordination is
difficult in these circumstances, particularly in so far as uniformity in approach and
avoidance of duplication of effort is concerned.
It is impractical for Tender Boards to deal with all
procurement matters pertaining to goods, services and works falling under their
jurisdiction. Accordingly, Tender Boards frequently delegate authority to consumer
departments or local authorities should these entities have systems in place to
effectively manage and control procurement activities. Delegation eases the work load on
Tender Boards and in effect streamlines the procurement process.
National and Regional Tender Boards, particularly those
which are comprised of both government officials and non-government persons, are seldom
encountered in Public Sector Procurement in other countries.
For example, the award of contracts in the United Kingdom,
is the responsibility of the department concerned. There is no system of referring tenders
to tender boards; contracting agencies are free to set up internal committees for the
evaluation of tenders. In France, tender boards play more of an advisory and policy role
and have little power to review individual contracts. Many of the former British colonies
permit departments to award tenders up to a certain threshold and have either permanent
tender boards or ad hoc arrangements to deal with the award of large contracts.
Internationally, there are also different approaches to the
regulation of procurement. In Anglophone Africa, which is reflective of British
administrative practice, government procurement regulations often form part of the
financial regulations. As a consequence, procurement procedures are enforced upon
ministries, departments and other government agencies as part of a broader set of
financial instructions. In Francophone Africa, which is reflective of French
administration, procurement regulations are detailed and inclined towards central control
by trying to integrate the regulations on public procurement in one legislative structure,
normally consisting of a public procurement code, accompanied by standard general
conditions for contracts of different kinds. The entities subject to public procurement
regulations may not only be government departments but also decentralised collective
entities, public entities, majority state owned enterprises and corporate bodies to the
extent that they use public funds.
It is acknowledged that the present system of procurement
through Tender Boards in South Africa is often cumbersome and unwieldy and in some
instances results in delays of functional services being performed by organs of State.
2.3.2 Vision
To have uniformity in tender procedures and control
measures to ensure that procurement is efficiently, and effectively, utilised as an
instrument of government policy throughout South Africa in a transparent, fair, equitable,
competitive and cost effective manner.
2.3.3. Secondary vision
- To encourage the uniform implementation of procurement
policy at national, provincial and local levels.
- To ensure that procurement procedures are simple, cost
effective, inexpensive, quick, transparent and free of corruption.
- To simplify tender procedures and make them more efficient.
- To have a system of procurement which is uniformly applied
by all organs of State, including parastatals.
- To utilise procurement as an instrument of government
policy.
2.3.4. Constraints
The new Constitution requires that procurement must be
in accordance with a system which is fair, equitable, transparent, competitive and cost
effective.
Current constraints to the attainment of the vision
include:
- There is a lack of clear, concise policy regarding
procurement reform objectives.
- Existing Tender Boards do not necessarily have the capacity
and expertise to effectively implement procurement reform.
- There are currently 10 autonomous Tender Boards at national
and provincial levels in South Africa.
- Parastal procurement falls outside the jurisdiction of the
State and Provincial Tender Boards.
- Accounting officers, who are held accountable for all
expenditures within their own departments, are required to have procurement dealt with by
Tender Boards without necessarily being represented on such boards.
2.3.5. Discussion
i. Systems of control and accountability
The starting point for any discussion about public
procurement organisation must be the systems of control and accountability applied to
public sector expenditure. The crucial issue is the interaction between user departments,
on the one hand, and organs in charge of control, on the other hand.
The continued role and functions of tender boards needs to
be critically re-examined in view of South Africa's developmental objectives together with
its programme to urgently deliver without undue delays. In addition, Clause 217(1) of the
Constitution reads as follows "217.(1) when an organ of State in the national,
provincial or local sphere of government or any other institution identified in national
legislation, contracts for goods or services, it must do so in accordance with a system
which is fair, equitable, transparent, competitive and cost effective".
In this regard, the following control measures are
currently in place:
- The accounting officers of departments are responsible for
all expenditures incurred within their respective departments and they are accountable to
their respective parliaments in this respect.
- The various departments already have or are in the process
of establishing their own auditing systems. In some departments these system are already
in operation.
- The Auditor-General audits the expenditures of all
departments and reports his findings to the respective parliaments. Accounting officers
are compelled to respond to such reports.
- Clause 216 of the new Constitution permits the national
treasury to prescribe measures to ensure, inter alia, expenditure control in each sphere
of government.
- The Office of the Public Protector is available to
investigate procurement irregularities.
With all the abovementioned control measures in place and
given that the Government's current policy is to devolve more managerial responsibility to
heads of departments, the following two questions arise:
- Are tender boards still needed as a further controlling
measure?
- Should organs of State be entrusted with the awarding of
contracts?
Clause 217 of the Constitution also raises another
fundamental question: should parastatals be subject to public sector procurement
regulations and the like?
ii. Linkages between National and Provincial Procurement
policies
Decisions taken by one Tender Board can impact negatively
on, and set poor precedents for other Tender Boards.
Decisions taken by one Provincial Tender Board in the best
interests of a province can have negative impacts on neighbouring provinces. A good
example of this has been some recent decisions taken in respect of stimulating local
economies. Preferences for local content in some provinces have led to market distortions
as such preferences have inflated local prices and caused local products to be dumped at
lower prices in neighbouring provinces.
Decisions by Tender Boards have in some instances set poor
precedents for others, particularly in the areas where emerging enterprises are seeking to
engage in public sector procurement. This raises unrealistic expectations which are often
not sustainable and causes delays in the procurement activities of National Departments
who are subject to the State Tender Board procedures and are often not in a position to
adapt their contract strategies to fall in line with local precedents. The converse is
also true. Much confusion exists within the business environment, particularly in the case
of national enterprises who have to develop different strategies (which may be in conflict
with each other), in order to secure contracts in different parts of the country.
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The Constitution recognises the aforementioned difficulties
associated with fragmented policies relating to developmental objectives. In this regard,
clause 217(2) makes provision for organs of State and institutions identified in national
legislation to implement a procurement policy which makes provision for "categories
of preference in the allocation of contracts" and "the protection or advancement
of persons, or categories of persons, disadvantaged by unfair discrimination". Clause
217(3), however, requires that "National legislation must prescribe a framework"
within which such policies may be implemented.
To achieve uniformity in National and Provincial
Procurement laws, National Government should first develop clear, concise policy
statements regarding its procurement reform objectives. Such policy should clearly state
the Government's affirmative action and anti-discrimination objectives. Empowerment cannot
be achieved outside the mutuality of these provisions. A framework for the dissemination
and evaluation of these policies should be put into place to enlighten Local, Provincial
and National leadership. It should consider stating - through appropriate legislative
enactment - its minimum threshold expectation of Provinces in respect of participation
goals, job creation goals, affirmative action goals, etc., and the establishment of
conditions for appropriation of national monies to Provinces.
The introduction of targeted procurement as envisaged in
Chapter 3 in order to affirm the reconstruction and development programme requires that
value for money, in so far as the development component is concerned, needs to be
monitored and measured as well as the attainment of the objectives themselves. Affirmative
action policy and its impact on society needs to be researched, developed, co-ordinated
and facilitated through a National Commission on Affirmative Action, comprising
representatives of various Ministries, Provincial and Local Government appointees,
parastatals, non-governmental organisations and private sector bodies, rather than by a
collection of Tender Boards having a narrow focus solely on procurement related issues.
Central government should also consider the aggressive
imposition of sanctions on violators of any National or Provincial procurement law, such
that no contract involving allocations of national monies can be awarded by an organ of
State or institution identified in national legislation to any contractor who has been
sanctioned or prohibited from participating in national procurement processes. Such a
sanction will deter fraudulent representation regarding issues such as equity ownership,
management and the attainment of development objectives.
The State should further establish creative incentives to
encourage provinces to implement threshold national reforms. This can, to some extent, be
achieved by making major grants available to national, provincial and local bodies subject
to such funds being used to further specific socio-economic objectives within well defined
economically disadvantaged communities.
iii. The case for central tendering
Central tendering has, in the past, proved to be cost
effective.
With regard to general period contracts which are contracts
arranged on behalf of more than one department for the supply of universal goods and
services, the principle of central tendering is advocated. Quantities are generally
unknown and the purpose of these contracts is to obtain the best unit prices for the
various commodities or services. Central government departments and provincial departments
participating in these contracts, are compelled to purchase their specific requirements
from the successful tenderers at the contractual prices. As these contracts, in many
instances, have resulted in enormous savings for the government in the past and in all
likelihood will continue to do so in the future, it is suggested that the offices of the
State and Provincial Tender Board continue with these contracts. This action will have
minimal effect on the functionality of the different departments as they are only
compelled to order from contractors when they are in need of the specific commodity and/or
service.
iv. The case for a Procurement Compliance Office
Given that :
- there are Treasury control measures which are in place;
- it is not a specified requirement of the Constitution that
Tender Boards be established;
- it is Government's stated policy to devolve more managerial
responsibility to departments;
- the Constitution requires national legislation to prescribe
a framework within which policies relating to preferences and the advancement of persons
or categories of persons disadvantaged by unfair discrimination, are to be implemented;
- national data bases will have to be established to
facilitate many aspects of procurement reform.
- co-ordination and uniformity in application of policies is
extremely difficult, if not impossible, between ten autonomous Tender Boards;
The reconstitution of the offices of the national and
provincial Tender Boards, the disbanding of the Tender Boards, the establishment of a
National Procurement Compliance Office and a national legislative framework is advocated.
it is submitted that the continuation of the system of
national and provincial tender boards would not best serve the country's procurement needs
in the light of the changed environment and is not an appropriate mechanism to affirm the
Reconstruction and Development Programme through the procurement system.
What is required is a system which permits consumer organs
of State to procure goods, services and works within a national legislative framework and
Treasury regulations, retains the services of the existing offices (as opposed to Boards
themselves) of the various Tender Boards for general period contracts and certain ad hoc
contracts and has a nationally based mechanism for directing procurement policy and
ensuring compliance with policy directives and legislation. Such a system would be driven
by two independent arms; procurement offices/centres being the one arm, and an office of
procurement compliance, the other. The procurement offices/centres would be responsible
for the day to day procurement activities i.e. inviting tenders, adjudicating tenders,
inspecting and testing of supplies and services offered and the awarding of tenders, in
terms of a national legislative procurement framework and the systems of procurement
established by the accounting officer responsible for procurement of relevant organs of
State.
The Procurement Compliance Office, which would be
nationally based, would on the other hand:
- formulate and advise on policy
- administer national procurement legislation
- audit the performance of Procurement Offices and Centres
- serve as a linkage between central government, national
treasury and the different procurement offices/centres located in organs of State.
- issue instructions to ensure uniform application of the
national procurement policy.
- promote communications and liaison between different
procurement offices / centres.
- investigate any complaints received from the public
regarding tender procedures and any irregularities.
- assist procurement offices / centres in executing the
national procurement policy and sanction those who are not adhering to or implementing
such policy.
- monitor the manner in which policy is implemented in respect
of development objectives, the manner in which targets are set and attained, value for
money obtained, delivery mechanisms employed, etc.
2.3.6. Linkages between Accounting Officers and the
Procurement Compliance Office
Accounting Officers of the different Organs of State should
be fully responsible and accountable for any expenditures regarding procurement within
their line of responsibility. Any expenditures incurred in this regard should be subject
to appropriate regulations and directives. However, to ensure uniformity within the
procurement system, national directives issued by the Procurement Compliance Office should
apply. The Procurement Compliance Office must endeavour to monitor all public sector
procurement and should assist any Accounting Officer in rectifying any deviations from the
national directives should such deviations occur.
2.3.7. Principles and proposals
A national legislative framework is needed to establish
uniformity in tender procedures, policies and control measures
A National Procurement Framework needs to be drafted and
promulgated to set out uniform tender procedures, policies and control measures as well as
preferences and policies with respect to the advancement / protection of persons or
categories of persons disadvantaged by unfair discrimination. Such legislation should also
include mechanisms for implementing new and reformed policies. Tender Board Acts need to
be repealed and a national Procurement Compliance Office needs to be established. The
State and Provincial Tender Boards should be disbanded.
The office of the State Tender Board and the offices of the
Provincial Tender Board should be reconstituted as Procurement Offices serving either
national, provincial or local organs of State, as appropriate. These offices should be
responsible for administering ad hoc contracts, where consumer organs of State choose not
to procure goods, services or works to supply their internal needs, and central tendering
(general period contracts).
Consumer organs of State (national, provincial and local)
should be permitted to procure goods, services and works should they so desire; except
those falling under the jurisdiction of the Procurement Offices or those in terms of
Treasury instructions which are regarded as being the functional responsibility of another
department to provide. Accounting officers who are responsible for Procurement Offices and
Procurement Centres should procure goods, services and works, as relevant, in accordance
with any system which they may devise provided that such a system complies with the
National Procurement Framework. They should, as such, be responsible for developing clear
procurement strategies, good management systems and staff training and development
strategies.
Consumer organs of State which engage in procurement
activities (Procurement Centres) as well as all Procurement Offices should submit regular
reports on their activities to the Procurement Compliance Office and should be subject to
regular inspections and ongoing monitoring by that office. Annual reports should inter
alia, set out milestones achieved in respect of targeted procurement goals, time frames
for increasing goals, changes in the ownership profiles of prime contractors/service
providers and the degree to which RDP related objectives have been met.
The national Procurement Compliance Office should ensure
that centres comply with national legislation, co-ordinate the implementation of new and
reformed policies, monitor progress made in the implementation of reform measures and
attend to complaints received from the public.
Entities which should be subject to national procurement
legislation should include not only all organs of State, but also certain parastatals,
particularly state majority owned enterprises.
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2.4. UNIFORMITY IN CONTRACT
DOCUMENTATION AND CONTRACT OPTIONS
2.4.1 Description
Tender Boards have not played a role in establishing
uniformity in contract documentation and contract options.
Tender documents define the rights, risks and obligations
of the parties to be involved in a contract and define the nature, quantity and quality of
the goods, services or works to be provided in the performance of the contract.
Accordingly, such documentation should be legally and technically correct and assign risk
in an appropriate manner.
Typically, tender documents comprise core documents which
set out conditions of tender; conditions of contract; specifications; data sheets /
drawings; and the tender itself. Contract documents contain certain additional documents,
including the contract agreement.
Tender Boards in South Africa are generally concerned with
the processing of tenders, the delegation of authority and in ensuring that contracts are
awarded in an equitable, transparent and public manner. Historically, Tender Boards have
not played a proactive role in tender documentation and have generally only examined
aspects such as conditions of tender and conditions of contract. As Tender Boards do not
usually have the expertise to scrutinise these documents, changes or new forms of contract
are accepted if they have been favourably received by State or Provincial legal advisers.
As a result, there is little uniformity in contract
documentation and delivery systems. Each organ of State may use its preferred conditions
of contract, subject to this being acceptable to the relevant Tender Board, draft their
own specifications, and format their documents in the style of their own choosing. In
works contracts, the tendency is to follow the recommendations laid down by professional
associations and learned societies and to utilise standard industry documents and systems.
This has also not resulted in the standardisation of documentation, as groupings within
these bodies and organs of State have for various reasons retained older forms of
contracts, opted for hybridised documentation or developed parallel documents.
Furthermore, various groupings have developed or supported different sets of
documentation. The division of the construction industry into building and civil
engineering components has further complicated the issue.
Reconstruction and Development principles and recent
government socio-economic policy objectives have demanded that contract documentation and
contract options be revisited to accommodate emerging enterprises and marginalised sectors
of society and attain certain socio-economic objectives. This has led to a largely
fragmented proliferation of new documentation.
There is also a need, following the lead of countries such
as the United Kingdom, to revisit delivery systems and forms of contract to improve sector
efficiency and effectiveness and to achieve good governance.
2.4.2 Vision
To have uniformity in contract documentation and contract
options in order to meet the Reconstruction and Development principles and socio-economic
objectives, effect economies in procurement and enable consumer organs of State to be best
practice clients.
2.4.3. Secondary visions
- To simplify the documentation process
- To enable tenderers to more accurately price the risks which
they are to assume.
- To increase the effectiveness and efficiency of public
sector procurement.
2.4.4. Constraints
Organs of State are free to utilise the documentation of
their choice, subject to it being legally and technically correct.
The lack of appropriate regulations and the absence of
co-ordination of contract documentation and contract options are the major obstacles to
the attainment of the vision.
2.4.5. Discussion
Different organs of State use different conditions of
contract. Some utilise in-house conditions of contract, others, particularly in respect of
works contracts, use industry based conditions. In some instances, extensive special
conditions of contract have transformed standard, industry-based contracts into in-house
ones, as the amendments are of such a nature that they change the very structure of the
documents. The South African Federation of Civil Engineering Contractors reports that
their members are currently faced with approximately 25 different conditions of contract
when dealing with public and private sector procurement agencies in South Africa.
Insofar as specifications are concerned, the South African
Bureau of Standards (SABS), a statutory body which was established by the Standards Act of
1945, has published approximately 3 500 national standards. Over and above the
development of national standards, the SABS also provides its expertise for the
development of co-ordinating (CKS) specifications in order to standardise and co-ordinate
the bulk purchases of government and semi-government bodies. CKS specifications are used
where no national standards are available. Organs of State, particularly in the case of
works contracts, frequently draft their own standards to cover situations which are either
not covered by SABS specifications, or where the existing SABS specifications for various
reasons, do not cover the subject to their satisfaction.
Frequently those responsible for preparing tender documents
have randomly mixed conditions of tenders, conditions of contract, specifications, and
measurement and payment terms. This has resulted in documentation being complex and
ambiguous and in the allocation of ill-defined and unacceptable risks to contractors.
Uniformity in tender and contract documentation will
promote:
- effective participation by new entrants/ emerging
enterprises to the business environment.
- cost effectiveness, both in financial and human resource
terms.
- understanding and interpretation by new entrants / emerging
contractors.
- the simplification of the documentation process
Uniformity in contract documentation will result in:
- tenderers being able to more easily determine the scope and
extent of risk.
- the management of a contract becoming routine and
administration procedures becoming mechanised.
- savings in cost and improvement in quality.
For uniformity to be effective, it should be implemented by
all organs of State, parastatals and the private sector.
i. The generic categorisation of contracts
In South Africa, Tender Boards have broadly grouped
"goods and services" into a single condition of contract and separated
"works" from "goods and services". The ST 36 General Conditions and
Procedures, as a result, covers supply only, supply and install and design and
fabricate/make up in a single, all encompassing document. As a result, the document is not
focused and is confusing to certain sectors of industry. The generic categorisation of
contracts would enable a family of focused conditions of contract to be drafted and,
particularly in the case of works contracts, uniform delivery options to be formulated.
Contracts could be categorised as follows:
| goods: |
being the supply of raw materials or
commodities made available for general sale. |
services: |
being the provision of labour and/or knowledge
based expertise. |
engineering & construction
works: |
being the provision of a combination of goods
and services, including building and engineering infrastructure, arranged for the
development and provision of an asset or refurbishment of an existing asset. |
Some activities will, unavoidably, fall between the
abovementioned categories. In such circumstances, such activities should be categorised on
the basis of where the greater proportion of sub-activities lie.
The generic categorisation of contracts will enable the
contracting environment to be rationalised, simplified and regulated.
The abovementioned categories of contracts can be further
divided into sub-categories. This will enable the contracting environment to be
rationalised, simplified and regulated. It would, furthermore, facilitate the
implementation of targeted procurement and in some instances training, the development of
enterprises and the delegation of authority.
Goods contracts could, for example, be further categorised
on the basis of whether or not they have foreign components or are likely to have foreign
components. Services could be subdivided into professional services, management services,
development support services and general services. Engineering and construction works
contracts, could be classified on the basis of factors such as size, complexity, novelty /
innovation, intensity (speed of design and construction), physical location, likelihood of
variations in scope, quality of the completed work and responsibilities i.e. risk factors.
Construction is, however, the synthesis of four functional activities, namely,
construction management, materials management, materials supply and physical work (labour,
plant and equipment). Accordingly, contracts can be further categorised on the basis of
who the contracting parties are, and the functional activities performed by such parties.
This latter categorisation is particularly relevant to the engagement and development of
emerging contractors in public sector procurement activities.
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ii. Alternative delivery and contract options in
engineering and construction works contracts
A wide range of strategies for public sector engagement in
the provision of services is available. An organ of State may use a variety of options to
improve a service being rendered or to engage the private sector for the delivery of
services. Organs of State may procure the resources of private sector companies in service
delivery through service contracts, management contracts, the renting of assets and
investment linked contracts. In each of these options the responsibility of the organ of
State diminishes; in service contracts responsibility for the operation and maintenance of
the service is retained; in management contracts most of the responsibilities are
retained, in the renting of assets ownership is retained and in investment linked
contracts (or concessions) responsibilities are deferred for a period of time.
A wide variety of strategies are available for the
procurement of assets, some of which include Design and Build; Develop and Construct;
Traditional Pre-planned; Management Contract (i.e. contracts are between the management
contractor and the trade contractors); Construction Management (contracts are between an
organ of State and the trade contractors); and Investment-linked (also known as Build,
Own, Transfer; Build, Own, Operate; Build, Own, Operate, Transfer).
International studies have shown that the optimum contract
strategy can influence the overall project cost by between 10 and 15%.
Payment terms to allow for major risk allocation between
parties include, lump sum contracts; remeasurable contracts; target type contracts which
facilitate modern partnering strategies; and cost reimbursable contracts.
Apart from the abovementioned delivery systems, a range of
contracting models has also been developed to facilitate the participation of emerging
contractors and the development of new businesses owned by previously disadvantaged
individuals; other models have been developed to engage local resources and to generate
jobs through the substitution of people for machines. South Africans have been very
innovative and creative in these areas.
There is a need to have uniform construction standards.
The importance of uniformity in approach and
standardisation of contract documentation in the development and implementation of the
abovementioned delivery systems cannot be overstated. There is a desperate need to
co-ordinate initiatives, avoid duplication of effort (and fruitless expenditure), and
disseminate these new methodologies to all organs of State. Organs of State should become
best practice clients.
iii. Construction Standards
The National Building Regulations contain functional
regulations which set out the requirements for the performance of a building, or element
thereof, without specifying the materials, dimensions or methods of construction. Rules
have been formulated to facilitate the design of traditional forms of construction.
Compliance with these rules is deemed-to-satisfy the regulations. No deemed-to-satisfy
construction rules are, however, provided; the regulations merely require that
"all workmanship in the erection of any building shall be in accordance with sound
building practice". As a result there is no standardisation of construction
practices and differences of opinion exist as to what constitutes good practice.
When the National Home Builders Registration Council's
(NHBRC) Standards and Guidelines committee was developing construction rules for the
recently launched home builder's warranty scheme, they found that none of the current
building industry specifications adequately covered house construction. As a result, they
were obliged to draft construction standards to minimise the NHBRC's risk exposure. These
standards would have been better located in national building regulations or a national
standard.
The SABS has been effective in introducing standardisation
in the area of materials specifications and to some extent, due to an industry based
initiative, in civil engineering construction standards. There is considerable scope for
achieving a higher degree of standardisation in the civil engineering industry, to
introduce standardisation in the building industry and to achieve national standardisation
covering both industries. Currently methods of measurement are incorporated in civil
engineering construction standards and this presents a barrier to the standardisation of
specifications. There are many examples of a lack of standardisation in specifications
which could be common to the two industries.
Standardisation of construction standards will not only
contribute to quality, cost effective products and savings in construction costs, but will
also enable new entrants / emerging contractors to learn what is required of them in a
consistent and systematic manner. The quality of training will also improve as trainers
will know what standards are applicable, and what trainees are required to produce.
iv. Documentation for emerging contractors
It is highly desirable that contract documentation be
appropriate to facilitate the development of emerging contractors and manufacturers into
the mainstream of the economy. In recent years, much documentation has been produced, the
quality of which has been extremely variable.
The writing of abridged contract documentation should be
avoided as the adequacy of such documents is questionable; they are unfamiliar to
officials and professionals; emerging contractors will not be afforded the opportunity of
becoming familiar with industry standards and may as a result be precluded from tendering
for work outside of development programmes; and such documents may not handle the rights,
risks and obligations of all parties in an equitable manner.
Construction contract documentation should be drafted in
such a way that it caters for a "hierarchy" of projects in terms of complexity.
Moving towards this system will greatly enhance the confidence, capacity and capabilities
of the emerging entrepreneur. In addition it could save the client / client's agent time
and money if an appropriate document is available, which contains only what is necessary.
v. The role of a national Procurement Compliance Office
Uniformity in contract documentation and contract options
in the public sector has not to date been achieved in South Africa for a number of
reasons, despite there having been many initiatives to do so. The reason for this is the
manner in which procurement is regulated. Currently, South African procurement is framed
around financial instructions following British colonial administrative practice. In
countries which are influenced by the French system of procurement, uniformity is achieved
because documentation is a subject of the procurement framework and regulations and
expenditure of public funds is conditional upon the use of prescribed documentation. For
example, it is mandatory in projects which are funded by the European Union in South
Africa to make use of the European Union's conditions of contract.
In France, the Tender Board is concerned with the detail of
contract documentation and not the award of individual contracts. The role of the French
National Tender Board is that of preparing, publishing, interpreting and promoting
regulations and standard documents for public procurement.
The French National Tender Board has four sections
consisting of collegial bodies of experts under the chairmanship of high-ranking
officials, namely:
- The Administrative Section, responsible for
regulations and documentation;
- The Economic Section, responsible for studies on the
impact of public procurement on the overall economy;
Regulation will result in uniformity of contract
documentation and the approach to procurement.
- The Technical Section, responsible for standard
technical specifications and similar documents designed to rationalise procurement; and
- The Price Section, which formulates opinions on
prices and studies price adjustment formulae.
The French system is, accordingly, highly regulated and
prescriptive insofar as contract documentation is concerned and ensures uniformity in
contract documentation and a structured approach to procurement.
The South African Bureau of Standards has not been entirely
successful in achieving standardisation, particularly in respect of the construction and
allied industries. Two notable examples are the absence of construction standards in the
building industry and the lack of materials specifications for water supply plumbing
components. The reason for this is that the SABS does not conduct the necessary research
and development required to formulate standards. Such research and development work needs
to have been undertaken by other organisations or private industry. Frequently the
research work is undertaken on a voluntary basis by learned societies or professional
associations and invariably, the technical committee members are not remunerated for their
time. As a result, the process is drawn out and it may take several years to finalise
documents. Clearly this situation is not conducive to standardisation in public sector
procurement.
A national Procurement Compliance Office can regulate
contract documentation and contract options.
It is submitted that the National Procurement Framework
which is proposed to achieve uniformity in tender procedures, policies and control
measures should be extended to regulate contract documentation and contract options and
that a Procurement Compliance Office could play a leading role in regulating such matters
by:
- prescribing standard sets of documentation in respect of
each generic category and sub-category of contracts, which may be used by all organs of
State.
- updating and amending such standard documents from time to
time.
- co-ordinating the drafting of new contract documentation.
- identifying deficiencies in documentation and the need for
further development of documentation
- funding and directing the research and development required
to facilitate the preparation of national standards.
The Procurement Compliance Office could appoint collegial
bodies of experts as is done in France to oversee and advise on these activities. Such
bodies can also take responsibility for the development of human resource specifications
and the like. This arrangement would enable uniformity to be achieved in the most cost
effective manner and would eliminate duplication of effort.
2.4.6. Principles and Proposals
- There should be complete separation in contract
documentation between conditions of tender, conditions of contract specifications and
terms of payment (including methods of measurement).
- A generic categorisation of contracts should be developed in
order to regulate and administer Public Sector Procurement activity in a uniform manner.
- A national standards body should publish and distribute both
human resource and technical specifications.
- Standard conditions of contract, based on the generic
categorisation and classification of contracts, should be used by all organs of State with
minimal project specific amendments.
- Government should play a leading role in the standardisation
of contract documentation and contract options and set an example in this regard for the
private sector.
- Construction standards common to all disciplines should be
developed for engineering and construction works contracts.
- Engineering and construction works contracts should be
drafted in such a way that they cater for a "hierarchy" of projects in terms of
complexity and needs.
The legislative framework which is proposed to achieve
uniformity in tender procedures, policies and control measures should be extended to
regulate contract documentation and contract options. The national Procurement Compliance
Office should prescribe standard sets of documentation which may be used by organs of
State, update documentation, co-ordinate the drafting of new documentation and fund and
direct any research and development required to develop documentation. Parastatals,
particularly those that are state majority owned, should be subject to these regulations
as set out in National Procurement Legislation.
Aid agencies should be informed of the benefits of using
the standard documentation, particularly, those pertaining to socio-economic objectives,
and be dissuaded from introducing their own documentation.
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2.5. ESTABLISHING A PROCUREMENT
COMPLIANCE OFFICE
The function of a Procurement Compliance Office
A national Procurement Compliance Office should manage
procurement reform, oversee the way in which the State does business with the private
sector and maintain the procurement system.
The establishment of a national Procurement Compliance
Office is the proposed institutional means of implementing procurement reform in terms of
a National Procurement Framework, overseeing the manner in which the State does business
with the private sector, and maintaining the public procurement system in South Africa.
This office would not have the power to conclude agreements, invite offers, cancel
agreements and the like as current Tender Boards enjoy, as such powers will be vested in
the offices (as opposed to the Boards themselves) of the current national and provincial
Tender Boards and various consumer organs of State. The prime function of the Procurement
Compliance Office will be that of overseeing the procurement system in order to ensure
that the procurement of goods, services and works is conducted in a fair, equitable,
transparent, competitive and cost effective manner in accordance with the prevailing
legislation and within the parameters of government policy. The Procurement Compliance
Office will not be involved in the awarding of individual tenders.
In terms of the proposals, existing national and provincial
offices of Tender Boards and accounting officers of organs of State will effect
procurement as Procurement Offices and Procurement Centres, respectively. Procurement
Offices and Procurement Centres will be responsible for all day to day procurement
activities i.e. inviting tenders, adjudicating tenders, inspecting and testing of supplies
and services offered and the awarding of tenders in terms of a National Procurement
Framework and the local system of procurement established by the accounting officer
responsible for such procurement. These Offices and Centres will, however, be responsible
for developing their own systems and strategies, management systems, staff training and
development strategies subject to their compliance with a National Procurement Framework,
and will be required to submit regular reports on their activities and be subject to
regular inspection and monitoring by the national Procurement Compliance Office.
The basic functions of a national Procurement Compliance
Office should in broad terms be to:
- formulate and advise on policy
- administer national procurement legislation
- audit the performance of Procurement Offices and Centres
with respect to:
- adherence to regulations pertaining to the National
Procurement Framework
- efficiency in procuring goods, services and works, as
relevant
- effectiveness in implementing policy relating to
socio-economic objectives
- attainment of affirmative (targeted) procurement goals
- adherence to treasury instructions
- attainment of specific national programme goals and
objectives
- ensure that procurement officers implement policies and
regulations in an appropriate, consistent and systematic manner
- serve as a linkage between central government, national
treasury and the different Procurement Offices/Centres
- issue instructions to ensure uniform application of the
national procurement policy
- determine the scope of goods and services which should fall
under the jurisdiction of Procurement Offices
- promote communications and liaison between different
Procurement Offices / Centres
- gather information / research procurement related issues and
trends
- play a role within SADEC to ensure a uniform procurement
policy for member countries and to assist other member countries to develop and establish
sound procurement systems
A code of conduct should be used to regulate private
sector participation and govern the actions of officials.
- assist Procurement Offices / Centres in executing the
national procurement policy and sanction those who are not adhering to or implementing
such policy
- regulate contract options and contract documentation
- monitor the manner in which policy is implemented in respect
of development objectives, the manner in which targets are set and attained, value for
money, delivery mechanisms employed in works contracts, etc.
- establish national data bases in respect of suppliers /
service providers / contractors, targeted business enterprises and the like
- develop information systems to ensure the exposure of the
larger public tenders to potential tenderers throughout the whole of the country
- monitor preference provisions
A code of conduct should be drafted to govern the
participation of suppliers, service providers and contractors in public sector
procurement. Similarly, a code of conduct should be drafted to govern the manner in which
officials of organs of State act. The Procurement Compliance Office should be empowered to
sanction those that transgress these codes in an appropriate manner.
The Procurement Compliance Office should also attend to and
investigate complaints received from the public regarding tender procedures and any
regulations. Should this office not reply to the satisfaction of the plaintiff, the latter
should be free to approach the office of the Public Protector in this regard.
The Procurement Compliance Office should also be empowered
to audit procurement which, for reasons of national security or confidentiality or
political sensitivities, cannot follow normal procedures.
2.5.2. Specialist arms of a national Procurement
Compliance Office
A Procurement Compliance Office should comprise five
specialist arms covering the following functional areas:
- Administration
- Registration
- Socio-economic affairs
- Technical matters
- Education and Training
Each arm should be headed by a high-ranking official and
where necessary supported by collegial bodies of experts.
i. Administrative arm
The specific responsibilities of the administrative arm
would be the regulation of tender procedures, policies and control measures so as to
achieve uniformity and to permit procurement to be efficiently and effectively utilised as
an instrument of government policy throughout South Africa. Responsibilities could
include:
- co-ordination of the implementation of new and reformed
policies.
- providing uniform interpretation for target groups in the
implementation of an Affirmative Procurement Policy.
- documenting and setting out policy directives.
- ensuring that enforcement mechanisms are introduced into
every level of government to ensure that targeted groups are given every opportunity to
compete for government contracts.
- receiving and reviewing annual reports submitted by all
Procurement Offices and Procurement Centres.
- developing and updating codes of conduct.
- drafting regulations which govern procurement activities in
terms of a National Procurement Framework.
- auditing procurement procedures adopted by accounting
officers
- auditing actual procurement practices of Procurement Offices
and Centres
ii. Registration arm
The registration arm should deal with all matters
pertaining to registration. Its responsibilities could include:
- the establishment of a national data base of suppliers,
service providers and contractors.
- the physical registration of suppliers, service providers
and contractors.
- the certification and registration of target group
enterprises.
- publishing, distributing and maintaining directories of
target group enterprises.
- sanctioning those that transgress the code of conduct for
officials and the code of conduct for service providers, suppliers and contractors.
- sanctioning those participants who abuse the system or
secure contracts on a fraudulent basis.
- initiating an information and communication awareness
programme (outreach).
iii. Socio-economic arm
The specific responsibilities of the socio-economic arm
would be to ensure that the potential of public sector procurement is realised as an
instrument of policy in the transformation process in a cost effective, transparent and
efficient manner. Responsibilities could include:
- monitoring progress made in the implementation of reform
measures.
- monitoring cost premiums, if any, in implementing
socio-economic strategies.
- monitoring, auditing and controlling delivery mechanisms
employed on construction projects which target marginalised sectors of society.
- regulating all matters pertaining to preferences.
- monitoring the manner in which targets (goals) are set and
attained.
- issuing directives pertaining to the socio-economic goals
which regions should strive to attain.
- establishing targets to achieve socio-economic objectives.
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iv. Technical arm
The specific responsibilities of the technical arm
would be the regulation of contract documentation and contract options so as to achieve
uniformity in order to meet Reconstruction and Development principles and socio-economic
objectives, effect economies in procurement and enable consumer organs of State to be best
practice clients. Responsibilities could include:
- prescribing standard sets of documentation in respect of
each generic category and sub-category of contracts, which may be used by all organs of
State.
- arranging for the updating and amending of such standard
documents from time to time.
- co-ordinating the drafting of new contract documentation.
- identifying deficiencies in documentation and the need for
further development of documentation.
- funding and directing the necessary research and development
required to facilitate the preparation of national standards.
- liaising with a national standards body responsible for
publishing and distributing human resource and technical specifications.
- auditing documentation which is utilised by Procurement
Offices and Centres in their procurement activities for compliance with documentation
directives.
- monitoring the use of documentation in public sector
procurement activities.
3. ACHIEVING SOCIO-ECONOMIC OBJECTIVES THROUGH PROCUREMENT
Contents
| The aim of the review process is to develop
a national procurement
system that promotes
the principles of the Reconstruction and
Development Programme and government's policies relating
to socio-economic objectives. Emphasis is placed on the facilitation of easy
access for small, medium and micro enterprises,
particularly those owned
and controlled by previously disadvantages persons, into
the mainstream procurement activities funded by the Public Sector.
The aim of empowering small, medium and micro
enterprises so that they can access the procurement process will be directed towards
having a spin-off in the formalisation of a previously informal sector of the economy.
This in turn will have spin-offs in the form of a
broadened tax base, improved labour standards and structured economic growth.
|
Objectives:
- To make public procurement accessible to all by simplifying
the process, and by encouraging fairness and transparency.
- To encourage greater competition in the public procurement
process through the creation of an enabling environment for small, medium and micro
enterprises while retaining quality and standards.
- To support participation of a broadened range of enterprises
with appropriate inland revenue registration and labour practices in order to ensure
sustainability.
- To revise the concept of value-for-money in the procurement
process in terms of the new objectives which are to be applied.
- To set out targeting policies in order to create
opportunities for the broadest possible participation in the public procurement process.
- To increase the volume of work available to the poor and
enhance the income generation of marginalised sectors of society.
3.1. OPPORTUNITIES AND CONSTRAINTS
3.1.1 Description
Procurement Policy should complement the macro-economic
strategy and extend affirmative action into the area of economic development.
There is undoubtedly a need to fundamentally transform the
existing public sector procurement system in order that it responds to current needs of
South African society. Current policies and procedures tend to favour the larger and
better established entrepreneurs and do not create a favourable environment for small,
medium and micro enterprises, in particular those owned and controlled by previously
disadvantaged persons, to access the mainstream procurement activities funded by the
public sector. In addition, the control of economic power that established business has
continued to hold, following South Africa's democratisation, has rendered the country's
political transformation meaningless for many. While it seems logical that established
business will always support economic growth and a market economy, these have not always
been popularly embraced by emerging business as they are not necessarily accompanied by
empowerment strategies. Debate and discussion on the racial composition of the business
sector and affirmative action will continue as long as disadvantaged businesses are not
actively participating in the mainstream economy.
It is imperative that the historical distortions that have
negated the increase in business opportunities that could have emanated from
entrepreneurship and natural partnerships be reversed.
A fundamental requirement for any new procurement policy is
that it should be in line with the Government's overall macro-economic strategy with the
acceptance that the country is now operating in a changed environment both locally and
internationally. It should, therefore, be reflective of the changed environment, embrace
representative government and take cognisance of the authority vested in the provincial
and third tier government structures and the provisions of the constitution in a pragmatic
manner. Furthermore, it should form part of the strategy for rebuilding and restructuring
as envisaged in the Reconstruction and Development Programme. As such, the policy should
extend the principles of affirmative action into the area of economic development.
3.1.2 Vision
To realise the potential of public sector procurement as an
instrument of policy in the socio-economic transformation process.
Secondary vision
To utilise procurement as a mechanism and a tool for
extending the principles of affirmative action into the area of economic reform.
3.1.3. Constraints
Public sector procurement can be used as an instrument
of policy in the transformation process.
In theory the only constraints to the attainment of the
vision are those relating to constitutional provisions and legal issues. In practice,
however, the constraints could include the lack of political will, and the lack of
willingness and/or determination of officials to implement the proposed procurement
policies as a means of transformation in a systematic manner.
3.1.4. Discussion
It is generally accepted that black economic
empowerment needs to be a focal point in the government's policy framework as the
continued exclusion of most of the population from the mainstream economy would have
serious long-term consequences. There has to be a mechanism whereby the Government can
reverse the economic inequities of centuries of systematic black disempowerment. An
expanding black middle class, fueled by education, employment and business
development programmes designed to overcome historic, legalised, racial discrimination,
will open new markets for South African products. Businesses will be able to increase
their competitiveness by bringing in a whole new class of productive employees and, at the
same time, adding a fresh perspective to the traditional corporate culture. The objective
is to right a wrong, not to damage or punish persons who benefited from the old system.
Government's role in economic growth and development is
significant. If present trends continue, economic disparities between the haves and
have-nots will move from inequitable to inhuman. There is an urgent need to ensure that
empowerment of the majority of the people keeps pace with economic growth. The task of
government, therefore, is to harness the energies of the people into a significant force
so that the expected economic growth advances human development, sustained employment and
equity.
Constitutional provisions do not rule out affirmative
action.
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i. Legal and Constitutional provisions
Any proposed strategy must be in accordance with South
Africa's legal and Constitutional provisions. The interim Constitution under section 26 (1
& 2) stated that every person shall have the right to engage freely in economic
activity, but does not preclude measures designed to promote inter alia, human
development, social justice and equal opportunity for all, since such provision are
justifiable in an open and democratic society based on freedom and equality. Further, the
interim Constitution stated under sections 8 (2) and 8 (3) (a) that no person shall be
unfairly discriminated against, but this provision does not preclude measures designed to
achieve adequate protection and advancement of persons or groups or categories of persons
previously disadvantaged by unfair discrimination, in order to permit their full and equal
enjoyment of all rights and freedoms. These principles are embodied in the 1996
Constitution.
The underlying aim of the Constitution is to form a bridge
from an unjust past system to a future underpinned by openness, democratic principles,
human rights, reconciliation, reconstruction and peaceful co-existence. It further
provides a bridge between the past of a divided society characterised by suffering and
injustice, and a future founded on the recognition of, inter alia, development
opportunities. The pursuit for the well-being of all citizens requires the reconstruction
of society. There is a need for reparation. The effect of this is that it can be argued
that the requirement of the Constitution for the tendering system to be fair, equitable,
transparent, competitive, and cost effective, does not necessarily rule out the principles
of affirmative action.
A system which includes some, but specifically excludes
others, may violate Constitutional rights.
Clearly, this calls for a well formulated and structured
approach that will promote the long term interests of the country without the exclusion of
any person or group of persons. A system that promotes opportunities for some, but
specifically excludes others by reserved procurement, or set aside schemes, can be
considered to violate the rights of individuals in terms of the Constitution and may not
be legally enforceable. What is necessary is a procurement option based on a philosophy of
targeting. This would permit all to engage in economic activity in a fair, equitable,
transparent, competitive and cost effective manner, whilst containing measures to promote
human resource development and equal business opportunities. It would allow all to
participate, but would tip the scales in favour of the target group. Thus, tenderers who
choose not to meet certain requirements would be penalised, but would not be precluded
from participating. On the other hand, those who fall within the targeted group and meet
all the relevant requirements cannot be permitted to hold a project to ransom in terms of
price and the reward for compliance must be able to be outweighed by penalties incurred
through uncompetitive prices. The objective of meeting the short term demands of
redistribution and economic empowerment should not necessarily result in additional costs
being incurred, or in loss of competitiveness.
Partnerships between established and disadvantaged
sectors needs to be established.
Competition has, by any measure, been shown over and over
again to be a driving force behind increased standards of excellence. What is therefore
necessary is a system that can be used to overcome the competitive advantages of
established business created by discrimination and compounded over time by
intergenerational transfers of human and financial capital. If the law created the
disparity then the law must remedy the inequity. Targeted programmes will expand
competitiveness and efficiency by encouraging black business development and
capital formation, thereby raising living standards for all South Africans.
Appropriate targeting will facilitate partnerships between
businesses in the established and the disadvantaged sectors, and could herald the
beginning of a system that will deracialise business ownership and control. This will
eliminate the sectarian nature of the economy which continues to create divisions in the
socio-political fabric of our society. As long as businesses continue to develop on racial
lines and to operate parallel to each other, South Africa cannot develop to its full
potential and will not compete internationally as a nation.
3.1.5 Principles and proposals
Any new procurement policy framework should comply and be
consistent with the Constitution which supports special measures in terms of Section 217
(2) and specifically states that any system advocated does not prevent any organs of State
or institutions implementing a procurement policy providing for:
(a) categories of preference in the allocation of
contracts; and
(b) the protection or advancement of persons, or categories
of persons disadvantaged by unfair discrimination.
To promote the stated macro-economic strategy, targets
should be designed to facilitate one or more of the following :
- the development of small, medium and micro enterprises
particularly those owned and operated by previously disadvantaged persons.
- an increase in the volume of work available to the poor and
in the income generation of marginalised sectors of society.
- affirmative action to address the deliberate
marginalisation from economic, political and social power of black people, women and rural
communities and to empower communities and individuals from previously
disadvantaged sectors of society.
New policies and procedures must be developed in a
practical and pragmatic manner which will promote Government's socio-economic objectives
and Reconstruction and Development principles in South Africa. This will enable organs of
the State to put in place systems in a targeted, transparent, visible, measurable, and
efficient manner when engaging in economic activity with the private sector, without
comprising principles such as fairness, competition, cost efficiency and inclusion.
3.2. ACCESS TO TENDERING INFORMATION AND
SIMPLIFICATION OF TENDER DOCUMENTS:
3.2.1. Description
The simplification of Tender procedures, information
networks and documentation is aimed at removing barriers which prevent emerging businesses
from competing freely for public sector contracts.
It has been argued that current procurement policies and
procedures tend to favour the larger and more established enterprises. They are so complex
that they do not provide small, medium and micro enterprises with easy access into the
mainstream procurement activities funded by the public sector. Furthermore, it is
difficult to obtain accurate and timely information about tendering opportunities.
The process of adjudication of tenders also occurs under a
perceived veil of secrecy. This creates a potentially debilitating environment where
accusations and suspicions about the fairness of the process abound.
The general lack of feedback to unsuccessful tenderers has
made it difficult for emerging businesses to learn what is required to win tenders and to
improve on their mistakes. New entrants to public sector procurement activities are,
therefore, susceptible to repeating the same mistakes in their tenders.
Currently there is little structured formal exchange of
information between tenderers and procurement departments. Obtaining accurate and timely
information about tendering opportunities is difficult for emerging enterprises who do not
have sophisticated information networks.
In addition, the present system of tender submission
requires the completion of various forms and supporting documents which, in their present
format, are unnecessarily complicated. Emerging concerns find them difficult to complete
satisfactorily, and logistical problems are often encountered by suppliers in preparing
and submitting tenders, especially in the emerging sector.
The paperwork and procedures required in the tendering
process dissuade, restrict and preclude willing and able emerging businesses from
participation in public sector procurement activities.
3.2.2. Vision
To remove barriers created by limited and entrenched
information networks, and unnecessarily complex documents and procedures which prevent
emerging businesses from competing freely for public sector contracts.
3.2.3. Constraints
Research has shown that there are several constraints which
presently stand in the way of achieving the vision identified. Various aspects of the
current systems used to communicate tender information and process tenders constitute
impediments towards achieving the vision of making the procurement process more
accessible. Some of these are:
The most important problem facing disadvantaged
communities is the lack of infrastructure and ability to tender because of the need to
access an unnecessarily complicated tendering system and work with complex documentation.
- Currently there is little interaction between procurement
units and prospective tenderers. So, the parties do not know each others' requirements and
difficulties. The result is that the procurement process is unresponsive to the changing
local tendering context and environment.
- There is a perceived lack of transparency in the process of
awarding tenders. The criteria which are used to adjudicate tenders are not clearly spelt
out, and often no reasons are given for acceptance or rejection of a tender.
- At present, tender invitations are advertised in State and
Provincial Tender Bulletins, or are posted on the notice boards of the Regional Offices.
Sometimes advertisements are also placed in newspapers, or tenderers on the approved list
compiled by Tender Boards of procurement units are notified. These methods of tender
information dissemination generally do not reach emerging businesses.
- The documents describing tendering policies and procedures
(and the actual tenders) are currently written in languages which are alien to many
businesses (English and Afrikaans). In addition, most documents associated with tendering
use highly technical language, jargon and legalese which makes them incomprehensible to
many emerging businesses. Furthermore, they are often poorly written and difficult to
understand.
- The layout and packaging of tender documentation is
generally not methodical, and is therefore confusing to most emerging businesses.
Frequently, conditions of tender are mixed with conditions of contract and are
interspersed with technical specifications. This lack of discipline in the drafting of
documents is very confusing to those who have not had considerable exposure to such
documents.
- Frequently, the standard conditions of tender and conditions
of contract are drafted to cater for every conceivable eventuality and no attempt is made
to present conditions appropriate to relatively simple and straightforward contracts. For
example, the ST 36 conditions are applicable to all goods and service contracts,
irrespective of size, complexity or nature of the goods or services required. Thus, the
small enterprise wishing to supply a local commodity is confronted with the same
documentation used for the purchase of, say, complex, imported electronic equipment.
- Various public sector procurement units use different tender
documentation which requires tenderers to invest time in order to familiarise themselves
with differing documents.
- Standard forms of contract or specifications, particularly
in the case of building and construction contracts, are often extensively amended by
public sector procurement units. Invariably, the list of amendments grows over a period of
time as amendments are rarely withdrawn. These documents are extremely confusing and
difficult to comprehend.
3.2.4. Discussion
i. A structured interaction between purchasers and
tenderers should be fostered and a relationship cultivated:
Workshops, meetings, printed and electronic media
advertisements, and information brochures are possible avenues through which the
procurement departments could mount out-reach campaigns to target tenderers with general
tendering information such as an explanation of departmental activities, projected
tendering opportunities, tendering policies and procedures, general conditions and
requirements of tenders.
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ii. The tender award process should be more transparent:
- Information regarding adjudication procedures and criteria
could be included in tender documentation.
- Lists could be prepared, for all tenders adjudicated,
indicating submissions that have been considered and those that have been disqualified.
- Proceedings at adjudication meetings could be recorded and
transcripts made available for public scrutiny should the need arise.
- Reasons for approving or rejecting any tender should be
furnished to the tenderer on request.
- In the event of a complaint about the award of a particular
contract, the investigations should be undertaken by officials who were not involved in
the adjudication process.
- For certain strategic tenders, a post-contract award
de-briefing meeting with tenderers could be arranged to discuss generic shortcomings of
submissions.
iii. Popular and accessible media should be used to
disseminate tendering information:
Although the Tender Bulletin, albeit in revised format,
could always be an official medium to advertise public sector tenders, particularly for
big contracts, tender information could be more widely disseminated.
In addition to the Tender Bulletin, certain tenders,
particularly the small and local ones, could be advertised through avenues such as, small
business development organisations' notice boards, local emerging business/contractor
organisations, Tender Advice Centres, community and commercial newspapers, and community
buildings (such as magistrate's courts, Post Offices etc.).
iv. A list of approved suppliers should be established,
based on performance:
A data base of all approved suppliers (including small,
medium and micro enterprises) could be compiled. Inclusion on the database could be based
on quality, delivery, reliability, stability, expertise, experience, existing facilities
and human resource levels of the supplier.
v. An information booklet on Tendering should be
published:
A booklet on how to tender could be compiled. It could
contain examples of tender documents with examples of obvious errors and how to avoid
them. The prospective tenderer could then familiarise him/herself with the language used
and the general conditions and procedures involved.
vi. Tendering documentation should be easy to comprehend
and user-friendly:
Some general concerns common to all documents are; the very
sophisticated language, legal terminology, a complex numbering system, lengthy paragraphs,
small font sizes, cramped layout and a tendency to present information as rules.
These concerns should be addressed, and the following
guidelines considered:
- Tender forms could be reformatted so that the number of
pages is minimised and the layout is more user-friendly.
- Language used in the documentation should be easily
understood by tenderers.
- All documents that are relevant to completing a tender could
be included in tender packages or available at tender issuing offices.
- Tenders for similar goods or services may be standardised.
Uniformity of tender documents can be achieved by adopting a general format in these
circumstances.
- Where reference is made, in any tender document, to another
document or standard or specification such document of standard or specification must be
available at all Regional Offices, Tender Advice Centres (TACs) and Local Business Service
Centres (LBSCs) for tenderers' use.
vii. Use of standard and appropriate documentation
There needs to be a commitment from procurement units to
use standard contract documentation with minimal deviations from the accepted standard
forms of contract and specifications. The practice of writing extensive special conditions
of contract to change the risks, rights and obligations of the parties upon which standard
conditions of contract are based, should cease. Bodies responsible for the development and
publication of such documents must be called upon to publish amended versions of their
documents as soon as the general weight of opinion requires such amendments.
Conditions of contract and specifications must be
appropriate and fit for their intended purpose. Contracts may be classified in terms of
the risk exposure of each party. Factors such as size, complexity, novelty, intensity
(speed of delivery), physical location, likelihood of variations in scope, volume and
responsibilities are indicators of risk. Standard conditions of contract can be drafted
around risk exposure for any class of contract. Accordingly, if standard conditions of
contract for a particular class of contract are used, the documentation should be
appropriate and commensurate with the risks associated with such contracts. To address
concerns that emerging businesses may not understand the manner in which they are to
conduct their business in terms of classes of contracts with higher risk exposures, a
summary of the principal features of the contract could be drawn up and issued without
prejudice.
viii. The feasibility of increasing the number of
locations for submissions should be investigated:
At this stage it is difficult to conceive of a suitable
working arrangement which would allow tenders to be submitted by electronic means such as
fax or e-mail. Also, it may not be realistic to permit tender documents to be delivered to
remote, local post offices instead of to the designated office.
The biggest advantage of the introduction of an electronic
tendering system would be that it would bring procurement to the people. Simplified
procedures could ensure access to information by marginally literate people at the touch
of a button. Safeguards against corruption could be built into the system. In addition,
the system would not necessarily require that each small, medium and micro enterprise
should have its own personal computer. Rather, computers could be located at the LBSCs and
TACs for use by tenderers.
or
Since tendering opportunities should be offered to small,
medium and micro enterprises at a local level, and local contractors are known in the
communities and can be contacted in an informal manner, tenders could be submitted to one
point in each area.
Theoretically, tenders could be submitted to various
locations and then sent, unopened, to a central point for adjudication.
In order to encourage small, medium and micro enterprises
to tender, tenders should be advertised, distributed and awarded as near as possible to
where the work is to be done, or the services are to be supplied.
Additional branch offices should be opened to cater for the
needs of specific regions and tenderers should be allowed to deposit tenders at these
branch offices. The branch offices would be responsible for transporting the tenders to
the Head Office within, say, 24 hours and placing them in the Master Tender Box.
However, where tenders are submitted to more than one point
the chances of fraud taking place are increased and this approach is therefore in conflict
with the commonly held view that tenders should be lodged at one place and be collectively
opened at a specific time.
3.2.5. Principles and proposals
To institute a responsive procurement process it is
necessary to foster a structured interaction and cultivate a relationship between the
procurement units and prospective tenderers.
The tendering process should not only be fair but should
also be seen to be fair (transparent) through all stages i.e. pre-tenders (briefing)
tender opening, tender award, and post-tender award (responding to complaints).
More popular and accessible media should be used to reach a
wider spectrum of potential tenderers with tendering information.
Tender documentation should be completely overhauled and
rationalised to encourage participation by emerging businesses in public sector
procurement activities. The whole tendering process should be made more accessible by
ensuring that tender documentation is:
- Easy to comprehend and user-friendly.
- Free of unduly onerous requirements and conditions.
- More widely disseminated and distributed, in order to reach
all potential tenderers.
- Standardised.
3.3. BREAK-OUT PROCUREMENT (UNBUNDLING)
3.3.1. Description
The scale and scope of tenders can be adjusted to
provide the emerging sector with greater opportunities for accessing the public
procurement process.
Small, medium and micro enterprises can participate in
public sector procurement in one of two ways. They can either contract directly with a
State, provincial or local body to execute a contract as a prime or main contractor, or
participate as a subcontractor, supplier or service provider to a prime contractor in the
delivery chain, popularly referred to as outsourcing. The scale and scope of a particular
contract, dictates to a large extent the nature of an enterprise's possible participation.
Emerging and historically disadvantaged enterprises find it
difficult to establish productive linkages with large scale enterprises. Accordingly, many
tenders have recently been broken down into smaller components to afford these enterprises
an opportunity to participate as prime contractors, service providers or suppliers. These
smaller contracts are an important source of work for enterprises which are graduating
from development programmes and establishing themselves.
3.3.2. Vision
To have a public procurement system which is accessible to
emerging businesses in as wide as a range of activities as possible, without impacting
negatively on time, cost and quality.
3.3.3. Constraints
The administration by public sector bodies, and their
agents, of a large number of small contracts could be more complex and costly than of
fewer large ones. Also the administrative capacity might not be in place to handle the
geographical dispersion of smaller contracts, the increased number of interactions and
communications with suppliers and contractors, and the processing of an increased number
of payment certificates.
The breaking down of tenders into smaller components is not
always justifiable, particularly for engineering and construction contracts. The reasons
for this include division of responsibilities, interdependence of activities, programming,
duplication of establishment charges and under utilisation of resources. Large engineering
and construction projects may be compared to an assembly line. A management contractor is
required to manage the assembly and to outsource production line items. The breaking up of
the assembly line into discrete and independent activities (contracts) is frequently
inefficient, as it destroys cohesive management.
The breaking down of a contract into smaller prime
contracts in order to accommodate the aspirations of smaller firms can have a negative
impact on cost and time. The international trend is to procure on the largest possible
scale in the knowledge that small specialist firms will manufacture / fabricate /
construct / provide various components and so be engaged in delivery.
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3.3.4. Discussion
The vision may be realised in one, or a combination, of the
following ways:
Any programme aimed at making the procurement system
accessible to emerging businesses must ensure that such businesses either perform the
contract, or add value in the performance of the contract.
Period and ad hoc tenders can be broken down into the
smallest practicable quantities, and into manageable sectors
- By procuring goods, services and works in the smallest
practicable quantities, without compromising cost efficiency, timeous delivery and quality
of product.
- By obligating prime contractors to engage targeted
businesses in the performance of their contracts.
- By requiring joint venture formation between established
businesses and targeted emerging business enterprises.
Emerging businesses have frequently preferred to contract
directly with public bodies and are somewhat reluctant to contract with prime contractors
for a variety of reasons, many of which relate to unfair conditions of contract and
difficulties in obtaining payment from prime contractor. This reluctance can be addressed
to some extent by regulating the type of contract which a prime contractor is permitted to
use in the engagement of targeted business and by providing for secured payment.
Consideration must be given to the contract period as the
intensity of delivery has a direct bearing on the type of enterprise which is able to
execute a contract. In some instances, long contract periods may be desirable in order to
enable emerging businesses to justify the acquisition of capital equipment. This approach
has proved to be successful in equipping contractors engaged in contractor development
programmes in Ghana and other countries.
Any programme or measure aimed at making the procurement
system accessible to emerging businesses must ensure that such businesses either perform
the contract or add value in the performance of the contract. Fronting should be
strenuously countered and procedures to establish the bona fides of targeted businesses
should form an integral part of the tender process.
3.3.5. Principles and proposals
i. Breaking tenders down into smaller contracts
Where feasible the following principles should be
considered for breaking up period and ad hoc contracts.
- To break areas of supply for contracts down into manageable
sectors (on a provincial, regional and local basis).
- To ensure that contracts involving more than one product or
service can be separately adjudicated, and handled by different contractors.
- To consider the outsourcing of contracts for delivery
services in order to empower small, medium and micro enterprises. This will require prices
to be broken down into components in order to establish the costs of distribution and
delivery.
- To categorise products and services in terms of their
complexity, in order to allow small, medium and micro enterprises to access the
procurement process by tendering for simpler contracts which involve lower risks.
- To award contracts on the basis of a development objective /
price mechanism (a point-scoring tender adjudication procedure) which has the engagement
of small, medium and micro enterprises as an objective.
- To award contracts for quantities that can be handled by
small, medium and micro enterprises whilst remaining cost effective to the State.
ii. The use of human resource specifications as a tool
for unbundling
Contractors can be compelled by means of a human
resource specification to engage targeted small, medium and micro enterprises in the
execution of their contracts
Contractors, suppliers and service providers are, normally,
required to construct, supply or provide a service in accordance with a technical
specification. They can, also, be required to execute their contracts in accordance with a
human resource specification which defines and sets out the goals for targeted small,
medium and micro enterprise participation in the performance of the contract in such a
manner that it can be quantified, measured, verified and audited. Human resource
specifications should set out how firms can meet these goals in order to comply with the
requirements of the contract. Furthermore, they should set out the measures which the
client body (employer) has at its disposal to remedy, or penalise, non-compliance.
Participation Goals can be defined as the net value of
goods, services and works for the supply of which the firm contracts to engage targeted
small, medium and micro enterprises in the performance of the contract, expressed as a
percentage of the tender value of the contract. Thus a participation goal of 20% would
imply that the amount of contract expenditure funneled through targeted small enterprises
is 20% of the tender value. Firms could, for example, meet their participation goal
obligations by:
- subcontracting portions of the contract to targeted small,
medium and micro enterprises.
- obtaining manufactured articles from manufacturers who are
targeted small, medium and micro enterprises
- obtaining supplies and materials from suppliers who are
targeted small, medium and micro enterprises
- engaging professional, technical or managerial service
providers who are targeted small, medium and micro enterprises
- obtaining insurances from targeted small, medium and micro
enterprises.
In this manner, prime contractors can be required to
'unpack' their contracts into smaller contracts and to procure the services of targeted
small, medium and micro enterprises to perform such contracts and to administer them. The
question of unfair conditions of sub-contract can be readily dealt with by denying prime
contractors credits towards their participation goal obligations should they not enter
into written sub-contracts with targeted enterprises which are free of unfair conditions.
Development objective / price mechanisms can be used to
reward firms which undertake to better specified minimum participation goals for a
contract.
iii. Structured Joint Ventures
Small, medium and micro enterprise participation on a
contract can be secured by requiring joint venture formation between large and small
businesses
Joint venture formation between large and small businesses
can be used to encourage and secure small, medium and micro enterprise participation.
Human resource specifications, as described above, can be utilised to structure,
facilitate and measure joint venture formation with targeted enterprises and joint venture
participation goals can be set.
Joint venture participation goals can be met where targeted
small, medium and micro enterprises acting as joint venture partners, perform with their
own resources work equal to a predetermined fraction of their participation and are
responsible for the execution of portions of the contract equivalent to their
joint-venture participation percentages.
Specifications can be drawn up to permit emerging
businesses to enter into joint ventures with established businesses. Such specifications
should be sufficiently flexible to permit the restructuring of the joint ventures should
the emerging businesses not perform satisfactorily.
3.4. AWARDING OF TENDERS IN TERMS OF A
DEVELOPMENT OBJECTIVE / PRICE MECHANISM
3.4.1. Description
By revisiting the current system of awarding tenders,
greater opportunities can be created for the accommodation of socio-economic objectives in
the procurement process.
The acceptance of the lowest tender does not necessarily
reflect value for money in the changed environment
Historically, tenders have been awarded to the lowest
tenderer, who has been overlooked only when there is clear evidence that he does not have
the necessary experience or capacity to undertake the work or is financially unsound. In
other words, the lowest tenderer has been overlooked only when it is considered that the
risk of failure by him to satisfactorily complete the contract would be high.
In the changed environment, value for money should not be
measured by monetary cost alone. It could be measured, also, by providing increased
employment opportunities per unit of expenditure, or a more acceptable technical offer, or
an exceptional human resource development offer. If, however, one moves away from awarding
contracts to the lowest tenderers in order to reward them for the socio-economic
components of their tenders, tender evaluation criteria must be clearly spelt out in the
tender documents to enable tenderers to compete on a equitable basis and in a transparent
manner.
3.4.2. Vision
To provide a public, competitive and fair tendering system
which allows for participation by all South Africans, while creating accelerated
opportunities for target groups.
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Secondary vision
To provide value for money in terms of both technical and
human resource offers, so as to achieve certain socio-economic objectives in a targeted,
transparent, visible and measurable manner.
3.4.3. Constraints
The current practice of accepting the lowest tender in
terms of price only, is inflexible and will restrict the degree to which the secondary
vision may be attained.
3.4.4. Discussion
Tenders could be awarded on a point scoring system in terms
of a development objective / price mechanism in such a manner that tenderers are awarded
points in the first instance for their financial offer and, in the second instance, for
their offer to exceed specified socio-economic objectives, or their current enterprise
status.
The current practice of accepting the lowest tenderer in
terms of price only, is inflexible and will restrict the degree to which the smaller
enterprises can access the process.
Development objective points could be awarded for exceeding
targets set in respect of:
- use of local resources
- use of targeted labour
- use of small, medium and micro enterprises
- employment generated
or the degree to which the tendering enterprise has
embraced:
- equity shareholding
- affirmative action principles.
Points could, also, be awarded on the basis of an
enterprise's status, or for environmentally-friendly practices.
The successful tenderer would, normally, be the one who is
awarded the most points, subject to technical factors, previous contractual performance,
financial references, unit rates and prices, alternative offers, qualifications etc.,
being acceptable. The premium, if any, which an organ of the State is prepared to pay to
meet certain specific socio-economic / development objectives is defined in the
formulation of the development objective / price mechanism which could be standardised
throughout South Africa.
In this manner the premium payable for incorporating
socio-economic objectives into projects would be minimised, as tenderers would compete
both on the basis of price and of meeting socio-economic objectives. Market forces will
dictate the degree to which contractors can meet socio-economic objectives in the most
cost-effective manner.
3.4.5. Principles and proposals
- Tender evaluation criteria should be formulated in such a
manner that certain socio-economic and development objectives are promoted by a weighting
in favour of targeted groups, without preventing those who fall outside such target groups
from tendering.
- Tenderers should be free to choose the degree to which they
wish to meet stated socio-economic and development objectives set out in tender documents,
based on economic considerations, but should be penalised should the degree to which they
propose to meet such objectives be limited.
- Tenderers should be free to decide on how they would
marshall resources in the performance of the contract based on economic considerations and
their skill, knowledge and creativity.
- Tenders should be structured in such a manner that those
individuals or communities who fall into targeted groups cannot hold a project to ransom
for financial or any other reasons.
- Socio-economic / developmental parameters or targets which
are set must be definable, measurable, quantifiable, verifiable and auditable.
- Penalties should be applicable to enable any cost premium
paid in respect of socio-economic / developmental objectives, which are not met during the
performance of the contract, to be recovered.
- Adjudication criteria, including the manner in which
adjudication points are to be awarded, should be clearly and unambiguously made known to
all tenderers.
- Adjudication points should be awarded in such a manner that
persons who are not part of the adjudication team would arrive at a similar result were
they to perform the adjudication.
- Details regarding the awarding of adjudication points in
respect of all contracts should be recorded for audit and evaluation purposes.
3.5. AN AFFIRMATIVE SMALL, MEDIUM AND
MICRO ENTERPRISE PARTICIPATION PROGRAMME
3.5.1. Description
There are major disparities in South Africa in the extent
of business ownership and participation in the provision of goods, services and works,
when previously disadvantaged race groups are compared to formerly advantaged race groups.
Similar disparities are found in terms of gender.
Participation by the disadvantaged groupings in public
procurement activities, given the current population demographics, is extremely low
throughout the country.
The RDP in its problem statement in the chapter on building
the economy states: "The South African economy is in deep-seated structural
crisis, and as such requires fundamental reconstruction. For decades forces within the
white minority have used their exclusive access to political and economic power to promote
their own sectional interests at the expense of black people....The South African economy
is also characterized by excessive concentrations of economic power in the hands of a tiny
minority of the population.
"Through the pyramid system and the resultant
control over a vast network of subsidiary companies, a small number of very large
conglomerates now dominate the production, distribution and financial sectors.....Not only
does this create racial and social tension, but it is to be seriously doubted that such
high levels of concentration can be economically beneficial.
Current business ownership is not reflective of
population demographics.
"A particular weakness of the economy, aggravated
by racist and sexist policies, is the inability to maintain a dynamic small-scale and
micro enterprises sector. Smaller firms, especially if owned by black people, can rarely
develop productive linkages with the large-scale sector. Most people in the informal
sector lack productive and managerial skill plus access to business sites, capital and
markets."
The RDP cites four major constraints which face small and
micro enterprises, being the lack of:
- access to markets
- credits
- skills
- supportive institutional arrangements
Three recurrent themes of the RDP call for:
- The putting in place of a programme of affirmative action to
address the deliberate marginalisation from economic, political and social power of
black people, women and rural communities and individuals from previously
disadvantaged sectors of society.
- The development of small businesses, particularly, those
owned and operated by black entrepreneurs.
- The provision of jobs and the addressing of unemployment.
The challenge is to create a cost effective system of
encouraging and promoting the use of small, medium and micro enterprises owned and
controlled by blacks and women in as wide a spectrum of public sector activities as
possible , without:
- taxing the administrative capacity of implementing organs of
State or;
- abusing or lowering labour standards
in a fair, equitable, competitive and transparent
environment.
An affirmative small, medium and micro enterprise
programme should not attract undue costs or overload procurement agencies' administrative
capacities, and should adhere to acceptable labour standards.
This challenge can be met, to some extent, by introducing
an affirmative participation programme directed at small, medium and micro enterprises and
aimed at:
- Reducing disparities in business ownership
- Directing some of the flow of commerce to and through these
population segments which have historically been under-utilised and excluded from
participation.
- Engaging small, medium and micro enterprises in public
sector procurement activities through prime (main) contractors on medium to large public
sector contracts.
- Providing accessible markets
- Forging linkages with large scale enterprises
3.5.2. Vision
To promote and advance small, medium and micro enterprises,
particularly those owned and operated by previously disadvantaged individuals, in public
sector procurement without attracting undue costs and overloading procurement agencies'
administrative capacities.
3.5.3. Constraints
The central blockage to the attainment of the vision is the
lack of a coherent transparent, participatory, and accountable procurement policy, and a
long term strategy and mechanisms to implement such policy in support of the vision.
3.5.4. Discussion
An affirmative small, medium and micro enterprise
participation programme should be regarded as being an instrument for the creation and
redistribution of increased wealth rather than the redistribution of existing wealth. The
development of healthy, competitive business enterprises can only lead to wealth creation.
It must, however, be recognised that because of the extreme
disparities which exist in South Africa in respect of issues such as levels of education
and income, intergenerational transfer of wealth and degree of economic activity amongst
the various population groups, an affirmative small, medium and micro enterprise
participation programme will have to be implemented in a progressive and incremental
manner and will have to be linked to development programmes.
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An affirmative small, medium and micro enterprise
participation programme should be regarded as being an instrument for the creation of
wealth rather than the redistribution of existing wealth.
Typically, development programmes could range from
providing access to capital and business counseling to entities which have already been
established, to enable them to consolidate and expand their businesses, to providing
opportunities for individuals to establish first-time businesses with the support of
development specialists in accordance with structured training programmes.
In the building and construction industry, for example,
proactive, third party management support has enabled previously disadvantaged communities
to participate in construction activities as contractors (entrepreneurs) and programmes
have been put in place to enable those with the necessary entrepreneurial flair to develop
fully fledged contracting businesses over a period of time. What is required is to build
upon these development programmes and to further develop these emerging businesses in
competition with established businesses by means of structured participation programmes
which enable emerging businesses to compete in the mainstream of the economy. An
Affirmative Procurement Policy, based on participation principles, is needed to shift the
focus from developing new capacity, to growing majority population owned businesses which
embrace sound business practices and contribute to the economy of the country.
The primary purpose of an affirmative small, medium and
micro enterprise participation programme is to provide equal access in contracting and
procurement opportunities for targeted businesses and, in so doing, eradicate the effects
of past and present discrimination in public and private sector procurement practices and
assist in creating and developing business enterprises which are reflective of population
demographics. The adoption of such a policy should not imply "reverse
discrimination" but should be regarded as an endeavour to ensure that all sectors of
the population have access to opportunities on a competitive basis and may advance
according to their relative abilities.
It is acknowledged that, in some instances, there may be
time and cost premiums attached to the implementation of this policy, as programmes may
require longer tendering periods to secure participation by the target group and for the
training of emerging businesses, and will attract administrative costs. This premium is,
however, considered to be rather insignificant and may be regarded as an integral part of
transformation costs. The issue is not whether the State, provinces and the local
authorities can afford to implement such a programme, but rather whether they can afford
not to.
In small contracts, all small, medium and micro enterprises
should have the opportunity to participate. A development objective / price mechanism
which targets ownership by previously disadvantaged individuals / women can be introduced.
Typically, points can be allocated on the basis of the percentage ownership of the
enterprise by persons falling into certain race and gender groupings should the
presumption be made that persons falling into race groups who were prevented from
participating in the previous political dispensation, as well as women, are socially and
economically disadvantaged.
Development objective/ price mechanisms with or without
human resource specification can be used to ensure significant participation of targeted
small, medium and micro enterprises in public sector procurement contracts in an
affirmative manner.
In medium to large contracts, goals can be set with respect
to affirmative participation targets (Contract Participation Goals) to ensure
participation by small, medium and micro enterprises owned and controlled by previously
disadvantaged persons who have annual average turnovers commensurate with the limits
provided for in the draft Small Business Enabling Act (Affirmable Business Enterprises).
The setting of such targets and the measurement of key participation parameters which may
be used in the evaluation of tenders and the audit of compliance during the execution of
the contract can be described and set out in a human resource specification.
Minimum participation or threshold goals can be set.
Failure to achieve these goals would disqualify a tenderer as it would be deemed that his
tender has not complied with the specifications. Tenderers who tender increased goals can
be awarded a preference in terms of the development objective / price mechanism. In this
manner, the price premium, if any, for requiring target group participation can be
confined to within acceptable limits.
Human resource specifications may also be used to
facilitate joint venture formation with Affirmable Business Enterprises. The removal of
restrictions on the turnover of any targeted enterprise, will afford larger emerging
businesses owned by previously disadvantaged individuals who have outgrown their small,
medium and micro enterprise status to be further developed by means of joint venture
formation with larger established businesses.
3.5.5. Principles and proposals
The purposeful flow of public funds directed to and through
those population segments which have historically been excluded from participation should
be achieved by:
- making the tender process accessible to the target group
without, however, guaranteeing work; and
- linking the flow of money into target business
enterprises with a concomitant flow of responsibility
As such, an affirmative small, medium and micro enterprise
participation programme should embrace the following principles:
- Any measures, which are adopted to secure participation by
the target business group, should not result in a failure in delivery, or a deterioration
in the quality of the goods, services and works which are procured.
- Sunset provisions based on the attainment of goals and
objectives should be built into the programme to ensure that participation measures do not
continue beyond the point at which they are no longer justifiable.
- Only those businesses which are currently in operation in a
particular industry and are considered capable of successfully completing a given
contract, at the point in time when goods, services and works are required, should be
considered.
- Businesses should compete for participation in contracts.
- Measures which are adopted to secure participation by the
target group business enterprises should fall away, once such businesses reach
predetermined turnover milestones.
- Business enterprises falling within the target group should:
- add value in the delivery of goods, services and works
- be controlled and managed by those individuals falling
within the target group
- be at least two thirds owned by persons falling into the
target group
- Companies which fall outside of the target group should:
- not be excluded from participation provided, however, that
they comply with certain human resource requirements
- be rewarded for implementing affirmative action programmes
within their companies should they achieve specific milestones in terms of their company's
shareholding (applicable only, to private companies), executive directorship and senior
management profiles.
An affirmative small, medium and micro enterprise
participation programme should be integrated with development initiatives aimed at
enhancing the business capacity and skills of established small, medium and micro
enterprises and should provide work opportunities for those enterprises which graduate
from initiatives aimed at developing new small, medium and micro enterprise capacity.
The programme should, in the long term:
- facilitate growth in terms of the efficiency and
effectiveness of delivery as well as the numbers and size of businesses owned and
controlled by previously disadvantaged individuals.
- ensure that emerging businesses contribute to the tax base,
engage workers who are affiliated to labour organisations, and adhere to safety and
environmental standards associated with those of developed countries.
3.6. PROMOTING EMPLOYMENT-INTENSIVE
PRACTICES
3.6.1 Description
Labour and resource based works programmes aim to serve
several purposes, including the influencing of infrastructural investment policies so as
to maximise employment and income generation, the creation of productive assets and
poverty alleviation.
Several employment intensive works programmes have been
implemented in Africa and Asia over the last two decades. These labour and resource based
works programmes aim to serve several purposes simultaneously. Above all, they aim to
influence infrastructural investment policies so as to maximise employment and income
generation, the creation of productive assets and poverty alleviation. In some instances,
the programmes have also set out to create and strengthen both public and private capacity
for the effective planning and implementation of employment-intensive policies and
programmes.
Such programmes are usually either of a relief, or a growth
and development, nature and involve either public works or works of community/household
interest. Typically, programmes of a public works nature have involved the construction or
maintenance of roads, aforestation, soil conservation and other environmental protection
works on public land. Community-based works programmes on the other hand, have focused on
small to medium scale irrigation works, small dam construction, aforestation on private
lands and community woodlots.
Similar programmes have been introduced and implemented in
South Africa during the last few years.
Employment-intensive methods have been employed in South
Africa on construction projects which include rural gravel roads; low level bridges; small
dams; residential township roads (surfaced and gravel); water and sewerage reticulation
for townships; bituminous surfacing of roads; low voltage electrical reticulations;
stormwater drainage systems; and on-site sanitation. Road maintenance projects have
included regravelling, and routine road maintenance.
The promotion of employment-intensive projects can be
seen as an attempt to realise the potential of the procurement system as an instrument of
job creation.
Other employment-intensive projects have included materials
manufacture (precast concrete products, timber roof trusses, metal window frames);
agricultural structures (dams, erosion control measures, irrigation projects); building
works (community centres, clinics, schools, classrooms, housing); agriculture (vegetable
and flower growing, indigenous herbs, poultry farming); clothing manufacture; handcrafts;
electrification; and refuse collection.
Frequently, employment-intensive practices have been
implemented by small scale community-based contractors.
3.6.2 Vision
To realise the potential of the procurement system as an
instrument of job creation.
Secondary vision
- To ensure that the concept of value for money includes the
dynamic of employment generation.
- To provide goods and works, wherever possible in a manner
which maximises cost effective employment creation / income generation.
- To encourage the substitution of labour for capital.
- To encourage the use of "labour friendly"
technologies in order to substitute local resources for imports.
- To increase the volume of work available to the poor /
marginalised sectors of society.
- To increase the opportunities for employment generated per
unit of expenditure.
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3.6.3 Constraints
Employment-intensive construction can be defined in civil
engineering projects as "the economically efficient employment of as much labour
as is technically feasible to produce as high a standard of construction as demanded by
the specifications and allowed by the funding available."
If employment-intensive works were always more economical
than plant-based works there would be no problem. The quality of the end product can be
readily measured and compared whereas economic efficiency cannot. Value for money
assessments, where socio-economic considerations prevail, are subjective. What are the
socio-economic parameters? What is value for money? There is also the question of
sustainability. Can employment-intensive works lead to sustainable job creation / income
generation?
3.6.4 Discussion
Employment-intensive works have been highly visible in the
civil engineering industry as the industry has aggressively marketed such practices. (This
industry probably has the highest exposure to public sector procurement. During the 1995
calendar year 83% of contracts awarded to the industry were let by organs of State. The
comparable figure for the building industry was a mere 15%.) The civil engineering
industry is plant intensive when compared to the building industry. Both industries are
employment-intensive when compared to most other industries. The building industry, in
general, generates more employment opportunities per unit of expenditure than does the
civil engineering industry. If, however, labour is substituted for machines, this position
can be reversed. Alternatively, if a blend of labour and light equipment is used on civil
engineering projects, the difference in labour intensiveness between the two industries
will reduce.
Public sector building and construction work forms a
significant portion of both industries' workload. These industries are supported by
numerous professional and contractor associations and learned societies, which facilitate
the dissemination of information. As a result, employment-intensive construction issues
are published and are visible. The same is not true of other sectors of industry,
particularly where public sector expenditure is relatively insignificant. Invariably, the
focus in sectors outside the building and construction industry has been on the
development of sustainable small business enterprises which are employers of labour and
for which labour-friendly technologies have frequently been developed in order to
facilitate the functioning of the enterprises.
The choice of technology has a marked influence on the
number and location of employment opportunities generated and the choice of construction
method can, particularly in the case of civil engineering projects, significantly
influence the total number of personhours of employment generated.
On building and electrification projects, significant
increases in the number of employment opportunities per unit of expenditure are only
possible where earthworks activities for which labour-intensive construction methods are
feasible, form a significant part of the works, e.g. where underground cables are to be
laid.
The choice of manufacturing method of building and
construction components and materials can also significantly affect the number of
employment opportunities generated. There is considerable scope for increasing employment
opportunities through the use of employment-intensive methods of manufacture.
The choice of technology is generally made during the basic
design phase of works contracts, whereas the choice of construction method / method of
manufacture is usually decided upon during the construction phase. Two alternative
procurement approaches to implementing employment-intensive works methods can be adopted.
Method 1 : lay down the use of specific
employment-intensive technologies and methods of construction / manufacture in the
contract document.
Method 2: afford tenderers the opportunity to choose
the technology / construction method / method of materials manufacture which they wish to
use in order to implement employment-intensive methods.
The choice of technology has a marked influence on the
number of employment opportunities generated and where such employment is located.
Either method may be used to increase the quantity of
employment generated per unit of expenditure. Method 1 usually achieves the objective by
restricting the use of certain types of plant / manufacturing methods and by specifying
particular technologies. Method 2, on the other hand, requires tenderers to tender the
amount of targeted labour, measured in accordance with a human resource specification,
which they undertake to engage in the performance of the contract. Method 2, accordingly,
permits tenderers to use their knowledge, skill and creativity in arriving at an optimum
economic mix of equipment, technologies and labour in order to meet the objectives.
Method 1 is well suited to the targeting of local labour.
The economic viability of this approach is, however, dependent on the ability of the
designer / specifier to forecast cost. Method 2 can be used for the employment of
relatively unskilled labour and any potential price premium can be readily assessed by
adjudicating of tenders in accordance with a development objective / price mechanism.
Method 2 therefore has the distinct advantage that tender prices will usually fall within
acceptable limits and economic justification of decisions relating to employment
generation will not be necessary.
A distinction should be made between the increase in the
volume of jobs available and the allocation of jobs to local labour.
With regard to employment sustainability, work on
infrastructure construction is, by its nature, temporary. It is also self-targeting
towards the poorest members of society, because unskilled wages in construction are
traditionally low. Workers with better options tend to go into other kinds of work and
leave the temporary jobs in construction to those with fewer options, the poorest. Thus,
although the jobs created are not permanent, the total volume of work available to the
poor is increased considerably.
Any form of employment-intensive construction or
manufacture, should be closely linked with the targeting of employment opportunities. The
question, "How many employment opportunities are created?" is no less
important than "Who is to be employed and which persons will benefit from the
projects?"
Targeted procurement can be used by government as one of
the strategies to ensure that the private sector implements policy relating to employment
creation on public sector contracts.
It may be argued that expenditure in any sector of the
economy will create employment opportunities. However, some sectors of industry are more
efficient than others in generating employment opportunities for a given capital inflow.
Industries where the potential for the effective substitutions of labour for capital and
local resources for imports exist, can expect to achieve enhanced performance in the
provision of employment opportunities.
3.5.5 Principals and proposals
Procurement should facilitate the generation of jobs in
South Africa by:
- ensuring that the foreign content in contracts involving
goods, services and works is minimised.
- encouraging the substitution of labour for capital.
- supporting the use of "labour friendly"
technologies which utilise a higher degree of labour input than is the case for
conventional technologies, or are well suited to implementation by small scale
enterprises.
- encouraging and developing small scale enterprises to
implement employment intensive practices and "labour-friendly" technologies.
Human resource specifications and development objective /
price mechanisms should be used to encourage cost effective employment intensive
practices.
A distinction should be made in the targeting of local
labour in order to stimulate local economies and the increase in employment opportunities
generated per unit of expenditure. Increased credits in development objective / price
mechanisms should be granted to encourage the increase in employment opportunities
generated per unit of expenditure where tenderers are permitted to choose technologies and
work methods.
Any premiums to be paid in respect of employment-intensive
practices should be determined and accepted prior to the award contracts. Employment
intensive practices should result in the generation of jobs as opposed to the displacement
of jobs.
3.7. AFFIRMING MARGINALISED SECTORS OF
SOCIETY IN CONSTRUCTION PROJECTS
3.7.1 Description
Construction projects are amenable to area-bound forms
of targeted procurement.
The targeting of marginalised sectors of society is
frequently linked to poverty alleviation and the channeled flow of income to the poorest
sectors of the community.
Previous subsections entitled "An affirmative small,
medium and micro enterprise participation programme" and "Promoting
employment-intensive practices" describe forms of targeted procurement in terms of
which the target groups are not confined to well-defined, narrow geographical areas. The
targets are of a generic nature and are not area-bound. Construction projects, however,
lend themselves to area-bound targeting as the assets which are procured have to be
constructed in a specific location.
The targeting of marginalised sectors of society
(communities) in construction projects is invariably linked to labour-based works.
Frequently, it is linked to poverty alleviation and the purposeful flow of income to the
poorest sectors of the community. Education and training are often seen as a means of
economic empowerment as the construction projects themselves are usually of comparatively
short duration. The development of community capacity to manage its own affairs in some
instances forms part of such projects as this is considered an essential component in the
strengthening of local governance and the generation of sustainable economic development.
The development of local enterprises is of great value to a
community. The resources readily available include local materials, local manpower, local
machinery and local money. Development support systems have evolved to provide
professional / developmental assistance and the resources lacked by local enterprises to
enable communities to construct their own infrastructures and to acquire skills and
competencies in commercial, administrative and managerial fields. Community members have,
in addition to the more traditional construction activities, also become involved in the
operation of stores facilities; the provision of support to local contractors by
involvement in administration, monitoring of progress etc.; the transportation of
materials from central stores to local labour only contractors; the manufacture of certain
materials; the supply of minor materials; and the security of the site.
Construction projects which target marginalised communities
in the context of public sector procurement should not be confused with relief programmes,
which are of a social and compensatory employment nature, or programmes involving works of
community or household interest where the beneficiaries of the assets are directly
involved and wage payment is not the prime factor motivating their participation, e.g.
construction on privately owned land. Projects which target (affirm) communities are works
administered by organs of State for the benefit of the public, where ownership of the
infrastructure created is retained by such organs and the major motivation for the labour
force engaged in the schemes is the wage received in compensation for their
labour.
There is at present no comprehensive policy in place to
engage marginalised communities in construction activities in South Africa and current
initiatives are a mix of international and local practice. There is a need to review
current practices, delivery systems and implementation mechanisms from a procurement
perspective and to establish policy in this regard.
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3.7.2 Vision
To realise the potential of the procurement system as a
means of empowering marginalised sectors of society in order to alleviate their
marginalisation from economic, political and social power through the creation of assets.
Secondary vision
To structure projects involving the creation of assets
within targeted (area-bound) communities in such a manner, insofar as the community is
concerned, that:
- The community is, from the outset, involved in decision
making and is, as far as possible, actively involved in all aspects of project
implementation.
- The maximum number of jobs are created.
- Entrepreneurship is actively promoted.
- Skills are transferred to the community.
- The amount of project funds retained within the community is
as great as possible.
3.7.3 Constraints
There are, of course constraints applicable to any project,
irrespective of the supplementary benefits that may otherwise accrue to the community.
These are:
- The project must be completed on time.
- Project expenditure must be within budget.
- The finished product must meet specified quality standards.
- The assets which are created must be appropriate and in the
public interest.
Delivery systems which seek to attain the vision must:
- not place organs of State at undue risk with respect to
failure to deliver, cost overruns or cost premiums.
- be easily audited.
- assign clear responsibilities to the parties which are
involved.
- not compromise the provisions of the constitution or labour
standards.
- not propose procedures which could result in undue cost
premiums, cost overruns, or delayed completion.
- ensure that all public funds are accounted for.
3.7.4 Discussion
Community projects can be community or authority
controlled, depending upon where administrative and financial control is placed.
The selection of the contract strategy dictates the
degree to which beneficiary communities can participate in construction activities.
Community projects are process (the manner in
which the asset is acquired and constructed) driven as opposed to product
(asset) driven, the process being just as important as the product. Community development
may be viewed as a process with milestones, completed projects being beneficial
by-products of the process, which does not have a definable start, or a definable end.
Facilitation is necessary to drive the development process, whilst contractors / service
providers are required to deliver the projects. Construction projects do have definable
starts and ends. Accordingly, tensions may arise over short term construction related
issues, as technical priorities do not always match community priorities and construction
expediences do not always meet community aspirations.
Facilitators should be impartial managers of the process
and are frequently required to lead/ assist communities in structuring themselves and to
generate sufficient consensus on the appointment of professional teams to provide the
necessary support in respect of design, organisation, project / construction management,
training, community needs and the like.
Projects which target marginalised communities will,
depending upon where the financial responsibility for dispersing of funds and the
administration of the project is placed, be regarded as being either community
controlled, or authority controlled. Within either of these two categories,
community participation insofar as construction is concerned, can range from the provision
of unskilled labour to the construction of the project as a whole.
Marginalised communities rarely possess sufficient
resources to undertake projects without external assistance and technical, commercial and
financial support is required to facilitate their participation. Implementation mechanisms
range from labour-pool worker programmes, in which prime contractors contract to engage
unskilled workers from the community, to the engagement of community contractors in tandem
with third parties who "fill the gaps" and minimise the public
authority's risk exposure. In some instances, communities have employed labour directly.
The contract strategy which is adopted dictates to a large
degree the extent to which communities can participate in construction activities.
Participation can be secured by means of human resource specifications and development
objective / price mechanisms; goals may be set for either the engagement of local
enterprises (local labour and local enterprises including local suppliers and local
manufacturers) or for the engagement of targeted labour. Participation can also be secured
by means of joint venture formation with targeted enterprises within communities or by
letting labour only and labour and material contracts and providing third party management
support to perform construction and materials management functions.
Third party management support has facilitated contractor
development based on the progressive introduction of labour, transport, materials, plant
and finance. The third party's responsibilities reduce as emerging contractors become
capable of assuming successive areas of responsibility and mastering functional
activities.
Competitive tendering can be used in all the aforementioned
contract strategies to secure targeted community participation without resorting to set
asides. Targets, however, need to be clearly and unambiguously defined on a project
specific basis. Contract strategies also need to be set on a contract specific basis in
order to optimise the benefits accruing to marginalised communities.
i. Community Controlled Projects
Community controlled projects are based on the
philosophy of making the community totally responsible for the project and its outcome.
Community controlled projects build capacity outside of
the third tier of government .
Community controlled projects are projects which are
specifically designed to be executed through community control, but with outside expertise
and assistance to help the communities in their efforts. For these projects, communities
are expected to set up their own legal entities, varying from voluntary associations and
trusts to Section 21 companies. These entities represent the communities by prioritising
their particular project needs, setting up management and control systems, receiving funds
and implementing the projects.
Community controlled projects are based on the philosophy
of making the communities totally responsible for the projects. Each community is, for the
purposes of the project, the client and is therefore responsible for the outcome. The
focus of control during the planning, design, implementation and operation of the project
is within the community. Organs of State provide assistance to communities, and approve
project plans in accordance with their normal responsibilities, but do not control
projects.
Where communities appoint consultants, organs of State
exercise no direct control over the consultants. This situation is not ideal, either from
the consultants', or the State's point of view. On some projects, consultants are
remunerated directly by organs of State and the communities are the consultants'
sub-clients.
In what is known as the Community-based Public Works
Programme, communities make application to organs of State for community-based projects.
Approval of an application enables the community to secure funding for advice and
assistance in order for it to commence with the planning of the project and the
preparation of project proposals, business plans and the like. Funding for the project is
only released upon acceptance of the proposals. Currently between 10% and 45% of the
project cost is paid into the community's banking account upon approval of the project.
The remaining funds are disbursed against monitoring reports which record progress against
predetermined milestones. Upon completion of the project, all remaining funds are returned
to the department and are reallocated to other projects.
The community is charged with all procurement matters and
is entitled to enter into contracts. The community is, furthermore, required to ensure
that any physical assets that are built are of an acceptable quality and is required to
exercise control over the monies received.
Communities are represented, and participate
procedurally, in a number of ways in authority controlled projects.
There is a view that community controlled projects
provide communities with 100% preference and are, in effect, set asides. Concerns have
been expressed that the community structures which are formed to oversee projects are, in
effect, gate keepers and opportunists; that community structures undermine local
governance; and that communities compromise labour standards. Some have questioned the
wisdom of placing responsibility for procurement and financial control in the hands of the
community, which does not have accounting officers as required in terms of treasury
controls. Others have questioned the sustainability of enterprises which have developed,
as they may not be able to secure work in programmes outside of their own communities, as
neighbouring communities will demand set asides for their members.
It may be further argued that Community-based Public Works
programmes develop capacity in communities which would be better located and more
sustainable in the third tier of government. The practice of placing funds outside the
direct control of accounting officers does raise a number of questions relating to risk.
For example, what happens if a community is unable to deliver the project within its
financial allocation and how are monies to be recovered from the community in the event
that funds are fraudulently or irresponsibly spent?
ii. Authority Controlled Projects
In authority controlled projects, accountability lies with
an organ of State, although communities can be represented and can participate
procedurally in projects in a number of ways. Projects can be identified either from
within the community or by the controlling authority. In some cases, the community may be
required to confirm the priority of an identified project.
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Opportunities for engaging communities in project
implementation include seeking approval for the asset to be created; the use of
employment-intensive construction methods; recruitment procedures and task-based systems
of employment and remuneration; the community liaison process; pre-tender arrangements;
maintenance and management arrangements for the assets after the project is completed; and
financial and training arrangements.
Community approval is construed to be given by the
conclusion of a contract between a representative community structure and the responsible
authority, or by a resolution taken at a representative community meeting. This approach
has generally been used in the implementation of labour-pool worker programmes.
At the other end of the spectrum of authority controlled
programmes lies the Development Compact approach. In terms of this approach, the
beneficiary community and the developer (implementing organ of State or their agent) enter
into a Development Compact, i.e., an agreement which lays down a procedure, which is to be
followed from inception to completion, allocates areas of responsibility and requires
participants to account for their actions. Project steering committees are formed to
administer this type of agreement.
The third tier of government should become community
joint venture partners and take responsibility for the implementation of projects.
Both the beneficiary community and the developer have
obligations in terms of the Development Compact. In essence, the developer is responsible
for working through the delivery options with the beneficiary community, while the
beneficiary community is responsible for accepting the development strategies, defining
the geographical area which is to be regarded as being local, nominating candidates for
management posts, advising on community needs, etc. In this manner, the beneficiary
community exercises more influence over the project than would normally be the case,
advises on community requirements and identifies local resources.
The Development Compact deals with issues at local or
project level. It presupposes that planning at the macro level has taken place and the
wider community has mandated the beneficiary community to enter into a development compact
with the implementing organ of State.
It may be argued that authority controlled approaches to
engage communities in construction activities were developed to overcome difficulties
associated with illegitimate government and are no longer necessary.
iii. The role of third tier government in community
projects
Funds have been placed in the hands of the communities for community
controlled projects for reasons other than a desire to develop capacity in the
communities. In many African countries, donors have opted for this route in order to
secure and dedicate the funds for the project in question and to by-pass organs of State.
In South Africa, this route has in the past been followed in certain instances in order to
locate monies in community structures as opposed to "illegitimate" local
authorities, or to provide a vehicle to disburse funds on projects where the third tier of
government had no capacity to do so, or was not functioning.
Recent local elections throughout South Africa have
resulted in democratically elected representatives being installed in metropolitan, town,
rural and district councils. The question now arises as to the role of the these councils.
It is submitted that :
- councils should account for public monies and that any
capacity building which may be necessary in this regard, should be directed at council
officials.
- councils should define marginalised sectors of society
(beneficiary communities) and lay down specific targets in delivery mechanisms, using
human resource specifications.
- councils should be the conduits through which national and
provincial implementing departments identify community projects and interface with the
communities.
- councils can, using local knowledge, guide national and
provincial implementing departments in deciding upon the best contract strategies for
particular projects.
- councils, or their agents, can undertake the necessary
community facilitation.
In effect, councils should become community "joint
venture partners". Councils should, as far as it is practicable, take responsibility
for the initiation and management of community projects and out-source as necessary the
execution of such projects to firms which are capable of providing the necessary
resources. The third tier of government should assume a co-ordinating role in project
facilitation and data collection, so as to avoid duplication and to achieve uniformity in
policy and approach within a particular region.
It is acknowledged that in certain areas, particularly
rural ones, councils are not fully functional. In such circumstances national and regional
implementing departments may, in the short term, need to undertake facilitation in
conjunction with relevant councillors and broker agreements with beneficiary communities.
iv. Compensatory wage packages in community projects
The jobs created by construction projects usually last only
as long as the construction phase of the project. To ensure some degree of sustainability
after completion of the project, education and training, in the form of vocational
training (technical, managerial, administrative); generic training (life skills; adult
basic education); and institutional training (developing a community to manage its own
affairs), is frequently provided to those working on the project. This is seen by some as
highly desirable and as providing a stepping stone to obtaining jobs elsewhere, or
becoming self employed.
Current recommendations for training budgets range between
5% and 10% of total project cost. Funding has, in the past, been sourced from project
budgets, government departments such as the Department of Labour, schemes such as the
Unemployed Persons Training Scheme and donors.
Wages and training costs have, in effect, become a
"tax" on community projects, particularly where, on civil engineering works,
labour is substituted for machines in an environment where wages are controlled by a wage
order, or conciliation board agreements. The wage order prescribes a minimum wage level
and requires employees to be remunerated on the basis of time worked rather than the
quantity of work done. Industry has argued that to make projects viable, workers should be
remunerated on a task-based payment system at a lower wage rate than the industry minimum.
Training is linked to the lowering of wages to sweeten the wage package. This has proved
successful where the Department of Labour has had funds available for the purpose, but has
become unattractive where the funding of training has had to be drawn from project budgets
which may already have been reduced to accommodate more costly employment-intensive
construction methods.
There is a relationship between wages and productivity. The
lowering of wages frequently leads to lower productivity and is not a recipe for
sustainable development , or enterprise creation.
The linking of training, at the level envisaged, to
employment, in order to permit a lowering of wages, has become a major issue. How should
training be funded? Should training be project specific? Should non-industry specific
training be linked to construction projects? Will industry specific training lead to an
over supply of labour in the market? All these questions need to be answered as the demand
for training has, in effect, resulted in a cost premium for projects of this nature.
Negotiations over wages and training can be very protracted and time consuming. This
results in delayed starts to projects. Also, communities which renege on their acceptance
of lower wages can hold projects to ransom.
3.8.6. Principles and proposals
Projects which involve the area-bound targeting of
marginalised sectors of society should, in a safe and healthy environment, be completed:
- on time
- within budget
- to the required quality
- with the optimal transference of skills and competencies to
the community
- with the optimal amount of project funds being retained
within the community.
Such projects should be based on the following principals:
- Risk must be allocated to the party best able to manage it.
(In practice, communities can rarely take on more risk than that arising from community
support / acceptance for the project, labour wage rates and labour availability).
- Communities should be held responsible for the quality of
the work except where third party management support or external contractors are involved.
- Labour standards should be upheld; employment policies
should be consistent with the new Labour Relations Act and conditions of employment.
- Adequate provision must be made to minimise risk exposure
through the use of appropriate contracting arrangements and integrated risk management
comprising risk control / improvement and risk financing.
- The roles, responsibilities, rights, risks and obligations
of all participants need to be clearly and unambiguously defined at the outset.
- Marginalised communities should be offered participation /
job opportunities.
- Organs of State should appoint consultants and training
providers.
- Upfront work with communities is a prerequisite for success.
- Policy should be flexible enough to enable a range of
community orientated projects with differing objectives, delivery mechanisms and
administrative arrangements to be implemented both in rural and urban areas.
- The third tier of government should take responsibility for
process facilitation, the cost of which should not be borne by the project. Project
specific facilitation should form an integral part of the project, the cost of which
should be borne by the project. (In rural areas funding should be obtained to finance the
facilitation of the process, should this be necessary).
- The third tier of government should define marginalised
sectors of society, establish area-bound targets (goals), interface with and assist
regional and national implementing departments in choosing the best contract strategy for
a project, establish data bases and perform a project co-ordination role.
- Contractors should have the prerogative to select
participants (community members / enterprises) from the target group and be permitted to
make substitutions for participants, or be relieved of their obligations should the
selected participants fail to perform.
- Communities should be compensated for their out of pocket
expenses and only receive remuneration should they perform a project specific function
which, had they not done so would have necessitated the employment of someone else.
- Training should, as far as possible, build onto existing
skills bases rather than create new capacity from scratch.
- All projects which are funded solely by means of public
funds should be authority controlled. Community controlled projects should only be
permitted where a significant proportion of the funds are obtained from sources other than
organs of State and effective controls are in place to protect the financial interests of
the State.
In order to facilitate delivery and to maintain labour
standards, task-based payments based on wage levels expressed as percentages of statutory
wage levels, should be legislated. Furthermore, conditions of employment should be
developed and promulgated for project-specific workers (temporary workers) whose status is
neither that of casual or permanent workers. This will reduce delays in procurement.
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In general, training should not be project specific, except
for on-the-job training, and should not be linked to the lowering of wages. Regional
budgets and programmes should address training for marginalised sectors of society on a
programme basis. All training should be in accordance with provincial human resource
development strategies, guidelines and principles. Contractors responsible for works
contracts should not be required to provide training other than specific on-the-job
training.
Community projects should be categorised. This will enable
organs of State to have a starting point when interacting with communities, and
opportunities and systems to be linked to categories of projects. It is proposed that
community projects be classified as either being budget offer or target market
and community or authority controlled.
Budget offer projects would be those in which a sum
of money is set aside for a specific community to be provided with certain facilities
within broad parameters and the flexibility exists for the end product to be determined,
both in quantity and quality, by the process without changing the budget. (A well known
example of this type of project may be found in the State's housing programme where
communities can, depending upon their priorities, have larger or smaller top structures,
depending upon their technical, training and method of construction choices.) Thus in budget
offer projects, community choices at every stage of delivery has an impact on the
final product. Accordingly, training budgets can be project specific and funded through
the project; less economically efficient delivery systems which meet the needs of the
community can be considered and contracts can be set aside for members of the community to
execute.
In the target market category, the community is
provided with facilities without the flexibility of the budget offer approach and has its
role confined to the submission of inputs, setting of affirmative targets and choice of
delivery mechanism within the constraints of value for money through the third tier of
government.
Target market projects should afford constituents of
beneficiary communities an opportunity of participation in projects, but should not
guarantee work to any individual or enterprise. Budget offer projects should be confined
to those projects where a narrow sector of the community benefits from the asset that is
created.
3.8. THE DEVELOPMENT OF AN AFFIRMATIVE
PROCUREMENT POLICY
Requirements for an Affirmative Procurement Policy
An Affirmative Procurement Policy is required to enact
the vision for the Procurement Reform Process and to facilitate the engagement of
previously disadvantaged enterprises and communities.
What is required is an Affirmative Procurement Policy which
sets out to enact the vision for the Procurement Reform Process. Such a policy would need
to set out clear statements of intent and address issues raised by questions such as:
- How can previously disadvantaged enterprises be given
preferential consideration for award of contracts?
- How does one ensure the performance of emergent, previously
disadvantaged firms?
- How will interventions be monitored and, if necessary,
redirected to achieve predetermined goals?
- How can previously disadvantaged enterprises be financially
assisted to establish themselves?
- What cost premium is government prepared to bear on
contracts in order to correct skewed apartheid influences?
- What needs to change in existing legislation to facilitate
the engagement of previously disadvantaged enterprises and communities?
- When should special measures taken to address skewed
apartheid influences, be withdrawn?
Affirmative Procurement should include programmes aimed
at the engagement of small, medium and micro enterprises; an increase in the volume of
work available to the poor, and income generation for the marginalised sectors of society.
Guiding principles for the development of an Affirmative
Procurement Policy
The Government has a compelling interest in ensuring that
public funds are expended in such a way that all segments of the South African population
benefit from such expenditure through job creation and commercial activity. Accordingly,
it is necessary, to purposefully direct the flow of commerce to and through those
population segments which have historically been under-utilised and excluded from
participation. This should be done in such a manner that participation in procurement
activities is ensured through:
- making the tendering process accessible to the target group
without, however, guaranteeing work; and
- linking the flow of money into target business enterprises
with a concomitant flow of responsibility.
In addition, an Affirmative Procurement Policy should,
where practicable :
- increase the volume of work available to the poor and
marginalised sectors of society.
- provide employment and income generation opportunities for
marginalised sectors of society.
An Affirmative Procurement Policy should have a
development component which enables the target group to participate in procurement
activities.
Affirmative Procurement should, accordingly, comprise
participation programmes aimed at the engagement of small, medium and micro enterprises
owned by previously disadvantaged persons, in all types of contracts and, in engineering
and construction contracts, increasing the volume of work available to the poor and income
generation for marginalised sectors of society. Sunset provisions should be built into the
system to ensure that programmes do not continue to protect and advance persons and
sectors of society, historically disadvantaged by unfair discrimination, beyond the point
at which such measures are no longer justifiable.
Affirmative Procurement should in the long term :
- facilitate growth in terms of the efficiency and
effectiveness of delivery as well as the numbers and sizes of business enterprises owned
and controlled by previously disadvantaged individuals.
- ensure that emerging enterprises contribute to the tax base,
engage workers who are affiliated to labour organisations, adhere to safety and
environmental regulations and, in their business activities reflect norms and standards
prevalent in developed countries.
The policy for Affirmative Procurement should have two main
legs, viz.:
- a development component which seeks to ensure that there
are, in fact, target group enterprises, albeit fledgling, which are capable of executing
public sector contracts for the provision of goods, services and works.
- a structured participation component which ensures that
enterprises owned and controlled by the target group are afforded the opportunity to
compete for the award of public contracts for the provision of goods, services and works.
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Development programmes which provide the necessary
developmental support to emerging target group enterprises should:
- ensure that goods, services and works are delivered on time,
within budget and to the required quality standards.
- transfer skills and competencies to the target groups.
- maximise the contract expenditure retained by the target
groups.
Affirmative small, medium and micro enterprise
participation programmes should, on the other hand, embrace the following principles:
- any measures which are adopted to secure participation by
the target enterprise group should not result in failure in the delivery of, or
deterioration in the quality of the goods, services and works which are contracted for.
- only those enterprises which are in operation in a
particular industry and are considered capable of successfully completing a given contract
at the time when goods, services or works are requested, should be considered.
- businesses should compete for the award of contracts.
- measures which are adopted to secure participation by target
group enterprises should fall away once such enterprises reach predetermined turnover
milestones.
Accordingly, the development component of the policy should
be concerned with:
- the clear allocation of risks, rights and obligations of
participants.
- the manner in which the development support is engaged.
- the selection of participants.
- capacity building, entrepreneurial enhancement and technical
and managerial training.
The structured participation component of the policy should
be concerned with:
- goals
- certification
- sanctions
- compliance
Targeting should be focused so that the target group is
readily and unambiguously identifiable.
In both components, programmes should be structured in a
transparent manner and should be narrow in their targeting, so that the target group is
readily and unambiguously identifiable.
Participants in programmes should be registered. Sanctions,
such as exclusion from future participation in public sector procurement, should be
applied to those who contravene the conditions of participation, or secure participation
in a fraudulent manner.
The target groups for participation programmes aimed at the
engagement of small, medium and micro enterprises and the increase in work available to
the poor, should not be area bound. The target groups for participation programmes in
engineering and construction works contracts aimed at increasing income generation to
marginalised sectors of society should, on the other hand, be area bound. The setting of
area bound targets should be undertaken by metropolitan / town / rural / district
councils. The councillors in whose constituencies construction is to take place should, if
mandated by their councils, be consulted by the implementing organ of State. The cost of
facilitation should be borne by the metropolitan / town / rural / district council and
should institutional capacity building be necessary this should be directed at the third
tier of government.
Administrative procedures located within an Affirmative
Procurement Policy should:
- be simple, cost effective, quick and transparent
- prevent corruption
- contain no form of discrimination of any kind
Finally, the policy should be underpinned by strategies
which provide:
- flexibility
- clarity
- stimuli for good project management
- empowerment for small, medium and micro enterprises to form
and run their businesses in a vibrant fashion in accordance with Reconstruction and
Development Programme principles.
- monitoring procedures to ensure that measures taken to
advance and protect disadvantaged persons and sectors of society are justifiable.
Some practical considerations regarding an affirmative
small, medium and micro enterprise participation programme.
Certification in affirmative small, medium and micro
enterprise participation programmes is required to establish that the target group owns
and controls the enterprise.
Certification is required to establish the bona fides of
the target group. Much of the focus of the certification process is on identifying fronts
and frauds and ensuring the integrity of the programme; the idea being that the screening
process will ensure that only bona fide target groups can claim target status, be accorded
preferential treatment and be empowered through the programme.
Where target enterprises are claimed to be owned and
controlled by previously disadvantaged individuals, certification should seek to confirm
such ownership and control.
Control of a business entity signifies the power to direct
both the operational and management control of the business entity. Accordingly, the
certification process needs to establish that, from an operation control point of
view, the target group:
- is knowledgeable in all aspects of the business.
- independently makes basic decisions pertaining to the daily
operations.
- has some experience and technical competence in the
industry, to which certification is sought.
Certification, from a managerial point of view, has to
demonstrate the ability of the target group to make independent and unilateral business
decisions, and to guide the future and destiny of the business. Ownership and control can,
to some extent, be established by questioning persons to whom goods, services or works
have previously been provided by the business entity.
Certification can be undertaken on a self-certification
basis, with minimal independent checks, provided that it is linked to a system of
registration, which permits transgressors to be deregistered and prevented from
participation in future contracts, and is open to public scrutiny. Self-certification
which is not linked to registration and public scrutiny should not be pursued in the
medium term, as recourse against those who abuse the system would be difficult.
Regional registers are not desirable as programmes would
not be based on area bound enterprises and co-ordination would be difficult. Registration
can best be effected by a national Procurement Compliance Office.
Prime contractors can also abuse participation programmes
by employing targeted enterprises in "pass through" activities (targeted
enterprises would fail to perform meaningful functions). Sanctions in the form of contract
administration remedies and the barring of contractors from tendering on future contracts
is considered to be the best method of dealing with such practices. To effect this,
registration of all contractors is required. Such registration and sanction can best be
effected by a national Procurement Compliance Office.
In special circumstances, sheltered market tenders may have
to be considered and designed for the 'differently-abled' community in order to ensure
that those targeted end up with contracts. As this is a form of reserved procurement, such
programmes need to be implemented under strict controls, and only when other remedies are
determined to be inadequate, or inappropriate, to meet the desired objectives. A national
Procurement Compliance Office can play an important moderating and supervisory role in
this regard.
Deregistration is an effective means of sanctioning
those parties that abuse the system.
A Procurement Compliance Office can register
contractors, engage in outreach, and publish directories of target group enterprises.
An information and communication awareness campaign is
required to inform established industry and emerging target group enterprises of the
programme and the specific opportunities presented thereby. A national Procurement
Compliance Office could assume responsibility for this. The publication of directories of
target group enterprises by such an office, broken down into regions and the services
provided by the enterprises, would enable productive linkages to be established between
emerging target group enterprises and large scale established businesses.
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Some practical considerations regarding the affirming of
marginalised sectors of society in construction projects
The defining of general target groups on the basis of
parameters such as franchise in terms of the 1984 constitution (race-based), gender and
scale of enterprise is relatively easy, as such definitions are universally applicable.
Furthermore, such targeting is not area bound. There is, however, no universal definition
for the targeting of marginalised sectors of society in construction projects. There are
many factors which need to be considered when determining which communities may be
regarded are being marginalised. Invariably, such communities are confined to specific
geographic areas.
All marginalised communities have labour which can be
engaged on projects. Some have enterprises which may supply materials, hire plant and
equipment, manufacture materials, construct portions of the work, etc. There are also
degrees to which specific groupings within communities are marginalised. Thus if the local
resources are available within marginalised communities, there may be different weightings
which should apply to different resources and to different sectors within the community.
At the same time, geographic areas which may be used to define enterprises will generally
be wider than those which may be used for unskilled labour.
It was proposed earlier in this chapter that elected
councillors, in whose constituencies construction takes place, should engage with
implementing organs of State on delivery options and define target groups, if relevant,
provided that they are mandated to do so by their respective councils. As such targets
have, for the aforementioned reasons, to be defined on a project specific basis, it is
submitted that in some instances targets which are set may not necessarily be appropriate.
The system is open to abuse and manipulation and councilors may, for reasons of vested
interest, promote delivery systems or promote enterprises which should, rather,
participate in other forms of programme. Furthermore, the setting of area bound targets is
a form of preference which, in terms of the new Constitution, must be regulated by
national legislation.
A national Procurement Compliance Office can exercise
external controls and perform audits on the third tier of government's engagement of
marginalised sectors of society in construction contracts.
In order to overcome these constraints, both actual and
perceived, external controls and auditing systems need to be put in place. A national
Procurement Compliance Office could do this and enforce a uniform interpretation of the
term "marginalised sectors of society". This arrangement would also ensure that
poor precedents are not set by metropolitan, town, rural or district councils. This is
particularly important, as the development of community contractors can work against the
development of black-owned small, medium and micro enterprises. For example,
community C may demand that only contractors from community C be engaged on a project.
This would mean that any contractors developed through projects in communities A and B
would be excluded from participation and have no continuity of work, i.e., enterprises
developed through community projects will not be able to export their services to
neighbouring communities and so develop in a sustainable manner.
The role of a national Procurement Compliance Office.
National legislation as recommended in chapter 2 should be
drafted to set out uniform tender procedures, policies and control measures and to require
all organs of State to use standard contract documentation and contract options. Such
legislation should also set out preferences and policies with respect to the advancement /
protection of persons or categories of persons disadvantaged by unfair discrimination,
define the target groups and provide for the establishment of a national Procurement
Compliance Office. The Procurement Compliance Office, apart from ensuring that procurement
offices and procurement centres comply with national legislation and setting regulations
and policy with respect to contract documentation and contract options, should, inter
alia :
- co-ordinate the implementation of new and reformed policies.
- monitor progress made in the implementation of reform
measures.
- sanction those that transgress the code of conduct for
officials and the code of conduct for service providers, suppliers and contractors.
- ensure that enforcement mechanisms are intertwined into
every level of government to ensure that targeted groups are given every opportunity to
compete for government contracts.
- receive and review annual reports submitted by all
procurement offices and procurement centres.
- establish and maintain registers of all those engaged in
procurement activities both as targeted enterprises and prime contractors.
- sanction those participants who abuse the system or secure
contracts on a fraudulent basis.
- initiate an information and communication awareness
programme (outreach)
- be responsible for certifying targeted enterprises.
- publish, distribute and maintain directories of target group
enterprises.
- monitor, audit and control delivery mechanisms on
construction projects which target marginalised sectors of society.
The Procurement Compliance Office is the engine which
may be used to drive Affirmative Procurement.
- oversee any sheltered market programmes which target the
'differently-abled' community.
- consolidate information and compile data for review and
reporting.
From the above it can be seen that the Procurement
Compliance Office would play a pivotal role and be, in essence, the engine which drives
Affirmative Procurement.
Key elements for the successful implementation of an
Affirmative Procurement Policy.
Aspects of an enabling environment which are conducive to
the effective implementation of an Affirmative Procurement Policy are:
- Access to tendering information and the simplification of
tender documents.
- Break out procurement (unbundling).
- Awarding of tenders in terms of development objective /
price mechanism.
The key elements of an Affirmative Procurement Policy, on
the other hand, are:
- An affirmative small, medium and micro enterprise
participation programme.
- Promoting employment-intensive practices
- Affirming marginalised sectors of society in construction
projects.
The statement entitled "Affirmative Procurement in
Brief" which may be found at the end of this paper, summarises these aspects of an
Affirmative Procurement Policy.
The success of an Affirmative Procurement Policy is highly
dependent on :
- endorsement and support from policy makers, senior
administrators and those accountable for the procurement of goods, services and works at
national, provincial and local level.
- a commitment from the highest levels of government (i.e.
executive, legislative and judicial) that the promotion of the target groups is a high
priority.
- comprehensive and unambiguous supporting documentation.
- effective monitoring and reporting systems being
established.
- establishing the bona fides of the target group.
- business development of the target group taking place.
- ready, willing and eager target groups who are able to take
advantage to the empowerment programme.
- competent and well trained officials and staff who are
dedicated to endorsing in a pragmatic manner elements set forth in legislative and policy
initiatives.
- a national Procurement Compliance Office:
- being responsible for establishing written procedures to
enact Affirmative Procurement Policy, establishing and reviewing participation goals on an
annual basis for all procurement offices and procurement centres, sanctioning violators of
procurement codes, investigating violations of policy and abuse, investigating and taking
action regarding complaints, collecting and maintaining statistics regarding the target
groups and their participation in public sector procurement, and publishing registers of
target enterprises.
- being proactive in aspects such as outreach, certification,
participation, monitoring and establishing and maintaining a national register / data
base.
- instituting monitoring systems to ensure that measures taken
to advance and protect individuals and sectors of society are justifiable.
- third tier of government facilitating the engagement of
marginalised sectors of society in construction projects.
- a comprehensive training and skills development programme
being embarked upon to ensure that officials and external service providers who engage in
procurement activities are competent and conversant with all aspects of Affirmative
Procurement.
[ Top ]
4. Specific Aspects of Procurement Reform
Contents
4.1 Introduction
Public Sector procurement is an instrument of Government
policy. The setting of new policies to serve socio-economic objectives, the changed
environment, and good governance require a review of the detail of the procurement system.
If this is not done, new policies will not be able to produce the desired results. At the
same time, government needs to be able to govern in an efficient and effective manner.
Procurement should facilitate and not frustrate organs of State in their functioning and
the discharge of their obligations.
The validity of current public procurement practices needs
to be examined, and certain practices need to be revised, some housekeeping is necessary
and issues which have never been satisfactorily resolved, need to be addressed.
Procurement activities may for practical reasons be
considered as falling into one of the three following categories:
| goods: |
being the supply of raw materials or
commodities made available for general sale. |
services: |
being the provision of labour and/or knowledge
based expertise. |
engineering &
construction works: |
being the provision of a combination of goods
and services, including building and engineering infrastructure, arranged for the
development and provision of an asset or refurbishment of an existing asset. |
The principles of procurement are, generally, applicable to
all three types of activity; the details, however, may change. The discussion and
proposals presented below, examines, as far as possible, issues in a non category specific
manner.
Engineering and Construction Works procurement is,
normally, more complex than that for Goods and Services as this type of contract requires
elements of both Goods and Services to be combined and arranged for the performance of the
contract. Construction contracts require assets to be constructed in a specific location,
and have requirements which are very industry specific. For these reasons, and because the
construction industry's role in public sector procurement is significant, some of the
issues which need to be addressed in construction projects specifically are also raised.
4.2 Value for money
i. Discussion
Value for money, in the context of human resource
development, is discussed in Chapter 3. The technical component of value for money also
needs to be re-examined.
Organs of State will need to embrace disciplines such as
value engineering (i.e. the structured and continuous approach to developing a common
understanding of a project's aims and requirements together with all aspects of function,
design, construction and operation) to enable the best functional balance between cost,
reliability and performance, and, hence, value for money to be achieved.
Procurement procedures should encourage tenderers to offer
alternative designs, techniques or proposals that offer better value for money. Proposals
which enhance the intrinsic quality without affecting monetary savings should, also, be
considered.
ii. Proposals
- Organs of State should, where appropriate, embrace the
discipline of value engineering.
- Tenderers who submit alternative tenders based on
performance specifications, should not necessarily be required to submit, in addition,
tenders without qualification or modification.
4.3 International competition (Foreign
Tenders)
i. Discussion
Most of South Africa's industries are not yet in position
to compete on a par with their international counter-parts. There are a number of reasons
for this state of affairs, particularly the fact that South African industries have not
gone through the full development cycle experienced by other developed economies.
Accordingly, many South African industries would find it very difficult to compete both
locally and abroad if all forms of preference and support for locally manufactured
products were to be abolished.
Whilst State regulatory policy should aim to achieve its
goals in an international context, it must also to take into consideration the support and
development of local industry, and the creation of job opportunities. The policy must
respond to key issues of national priority such as the upliftment of previously
disadvantaged sections of the community, whilst also reflecting on issues pertinent to
international trading, and how these issues will be managed. Industry must become
competitive both on the local and international markets.
[ Top ]
Local industry can be protected in a number of ways
including:
- The imposition of restrictive tariffs on all goods of
foreign origin.
- The institution of non-tariff based controls on importation
(i.e. Import Control).
- The provision of preferences for local supply based on local
content.
- The application of affirmative (targeted) procurement
practices.
Price-based preferences invariably raise the issue of value
for money, particularly where the price differences between imported and locally produced
goods are significant. Such preferences are, furthermore, often in conflict with
international trade agreements.
Contract strategies and the packaging of contracts can also
be used to tip the scales in favour of the local industry. The size of contract, early
warnings to prospective local suppliers of forthcoming tenders, and technical assistance
programmes can all play a part in ensuring, that local tenderers have a fair chance of
winning contracts.
Targeted procurement practices can be effectively used,
particularly on construction projects, to ensure that there is significant local content.
The objective can be achieved without resorting to the conventional restrictive trade
practices as all tenderers, including foreign tenderers will be required to deliver in
terms of technical and human resource specifications.
Both technology transfer and human resource development are
crucial to the advancement and development of local industry. South Africa's policies
ought to ensure that the country enjoys the maximum benefit of foreign participation by
incorporating a requirement for technology transfer and human resource development as
integral conditions for foreign tenders.
A single, broad and comprehensive policy may be easier to
manage than numerous narrowly defined policies. An offset policy is an ideal instrument
through which all requirements can be achieved. Technology transfer and human resource
development can be used as credits for the required offset value under an offset contract.
Alternatively, it could be a requirement that foreign tenderers meet their offset
requirements through purchases or services sourced from small, medium and micro
enterprises.
To develop and formulate an offset policy, data would need
to be gathered and analyzed. Accordingly, this is a medium to long term approach.
Since South Africa has joined the international trading
community by signing the World Trade Organisation agreement, it is desirable to develop
harmonised and transparent procurement procedures, acceptable to local and foreign
tenderers, which make provision for value for money and competitiveness, with special
emphasis on meeting the principles of the Reconstruction and Development Programme and the
socio-economic objectives of government. It is, however, important that South African
industries move rapidly to a position where they can compete on par with other world
economies. An export orientated policy which is consistent with international trading
norms might be the key to developing local industries to the required level of
competitiveness.
ii. Proposals
- The current preference system for local content should be
continued and be extended to professional service contracts.
- Specific attention should be paid to the selection of
contract strategies, the packaging of contracts and the setting of human resource goals in
order to maximise local content.
- The continuation of the preference system should not rule
out the adoption of broader policies in the future which may be easier to manage and which
can yield increased benefits. One of these policies could be an offset policy. An offset
policy can be comprehensive, covering many issues, yet be easy to manage, since the
responsibility for satisfying the offset agreement requirements rests with the seller
(foreign tenderer). An offset policy has an inherent bias towards export promotion, which
is an indirect, but more effective way of supporting local industry.
- In order to simplify tender documentation, streamline
administrative procedures and focus protective measures, preference systems should be
linked to the categorisation of contracts and applied only to specific sub-categories of
contracts.
- Foreign labour should be utilised only in circumstances
where the requirements cannot be met by using local labour. Government procurement policy
should ensure that this policy is respected by the those tenderers who respond to
government tenders.
- The appointment of international specialists should be
conditional upon the transfer of skills to their South African successors.
- Foreign tender participation should be based on, inter
alia, value for money and on the promotion of international competitiveness.
- Foreign tenderers should be used for the development and
benefit of local industry. Both technology transfer and human resource development should
be linked to such tenders in order to ensure that South Africa enjoys the maximum benefit
from foreign tenders.
4.4 Impact of the World Trade
Organisation Agreements (WTO - formerly GATT)
i. Discussion
The World Trade Organisation (WTO - formerly GATT) is the
body that regulates international trade. It fulfills three main functions, viz:
- it is the preeminent forum for negotiating multilateral
trade agreements which, in effect, regulate national trade-related economic policies;
- it contains established legal instruments governing
international trade; and
- it possesses Dispute Settlement Procedures to resolve
trade friction between Members.
South Africa, a Founder Member of GATT, is classified in
the WTO as a developed country and there is some debate as to whether South Africa
should seek to be reclassified as a developing country. Although South Africa has
never formally sought reclassification, it negotiated favourable conditions and extended
implementation periods in several of its sensitive economic sectors during the Uruguay
Round of the GATT. Thus, while WTO rules regulate international trade practises and
procedures, there is significant scope to negotiate specific terms and conditions that
cater for national interest and priorities.
Unlike most of the WTO agreements to which South Africa is
committed as part of the WTO's single undertaking principle, the Agreement on Government
Procurement is plurilateral and extends obligations only to Members that are signatory to
its provisions. South Africa has, to date, not signed the Agreement and there are
expectations that the Government will come under increasing pressure from its main trade
partners to do so.
In responding to the pressure, South Africa should adopt a
balanced approach that recognises not only potential costs, but also the potential
benefits that accession to the Agreement on Government Procurement may provide. It is
critically important to recognise that the issue of government procurement will remain on
the multilateral negotiating agenda and the challenge is to engage the issue in a way that
promotes South Africa's national interests. Moreover, Government needs to take cognisance
that once it has defined its interests in this area, it is possible to negotiate the terms
of accession to the Agreement in a manner that is not inconsistent with national
priorities.
The Agreement on Government Procurement recognises that
'entities', which encompass governments and agencies controlled by them, are significant
buyers of goods and services. Given the growing significance of this market (several
billion dollars), a potential benefit of accession to the Agreement is that it will permit
South African firms to tender for valuable government contracts issued by other Member
countries. The purchases of governments and their agencies around the world cover a range
of goods and services that may be of interest to South African firms.
Counter arguments suggest that accession to the Agreement
will preclude the Government from applying preferences in awarding contracts on the basis
of national development priorities; to promote local business (including SMMEs) and to
encourage black economic empowerment. The argument is that foreign firms will be
successful in tendering for South African Government procurement contracts and may
supplant smaller, less competitive South African suppliers.
In addition, the potential (negative) effects of the
Agreement may be to:
- weaken the country's balance of payments situation;
- lessen the utilisation of installed production capacity;
- downscale the creation and maintenance of job opportunities;
- weaken the socio-economic principles of the
RDP;
- lessen the ability to maintain an Offset policy; and
- make the government procurement system inaccessible to
disadvantaged persons.
These effects need to be thoroughly researched before any
definite conclusions can be drawn. In any event, the constraints imposed on Members by the
Agreement are not absolute as there is considerable scope for the negotiation of
exemptions and exclusions; Governments may list (or specify) which entities will be
covered by the Agreement; entities are entitled to maintain their own specific lists of
permanent suppliers. There is also provision for selective tendering.
The Agreement specifies that it only applies to procurement
contracts valued at SDR 150 000 or more. Governments can therefore establish their own
independent criteria in awarding contracts valued at less than this amount. It would,
accordingly, be valuable to explore whether this threshold can be negotiated upward or
not. If South Africa were to secure developing country status in acceding to the
Agreement, it would qualify for Special and Differential Treatment which permits measures
to, amongst other things:
- safeguard the balance of payments;
- promote SMMEs (infant industries); and
- revitalise rural and underdeveloped (sub-national) regions.
In addition, Members that participate in regional
arrangements (SADC) are able to negotiate exclusions on the basis of, for example,
promoting regional industrial development. In short, the Agreement contains degrees of
flexibility that need to be examined.
[ Top ]
ii. Proposals
- South Africa should not adopt an intransigent or dogmatic
approach to the issue of public sector procurement. While it may be opportune to resist
accession to the Agreement at this time, it is important that South Africa begins to
engage the issue directly and to define its interest empirically.
- It is also important to recognise that the issue will not
disappear from the multilateral trade agenda. In this regard it should be noted that at
the WTO Ministerial Meeting, held in Singapore in December 1996, Ministers agreed to
establish a Working Group to conduct a study on transparency in government procurement
practises, taking into account national policies and to develop elements for inclusion in
an appropriate agreement. As the principle of transparency and due process are enshrined
in the Constitution, the WTO process should pose no threat to South Africa.
- A broad, long term strategy will need to be formulated. In
formulating this strategy, more research is required to analyse and calculate:
- the potential for foreign firms tendering for government
contracts;
- the potential benefits that may flow from successful
tendering by South African firms in foreign countries.
- In addition, a detailed analysis of the Agreement on
Government Procurement and how it has been implemented in other countries should be
undertaken. The aim would be to explore the scope of flexibility contained in the
Agreement and the full range of options that may be available to Governments. It is also
vital to recognise the advantages that flow from developing country status. If South
Africa's trading partners are keen to secure this country's accession, it may provide the
leverage to accede on a developing country basis (either formally or informally). This
option needs to be explored. South Africa may also accede to the Agreement gradually. It
could open up to foreign competition on a case-by-case basis weighin up the overall
(socio-economic / efficiency) costs and benefits.
4.5 Appointment of consultants
i. Discussion
Consultant appointments can be broadly classified in terms
of certain characteristics which may affect the extent to which specific selection
criteria and specifically price, may appropriately be used in the selection process. The
two extreme poles of the spectrum of consulting assignments can be defined as follows:
- Routine assignments i.e. tasks of a straightforward
nature involving, in the main, standard technologies in terms of which inputs are
relatively well known and can be readily defined.
- Conceptual, complex and multi-disciplinary assignments
i.e. those assignments that call for considerable innovation, creativity and skills,
frequently outside a single discipline. Examples include policy development, project
management, technically complex assignments, restructuring, expert advice, strategic
planning, and research and development. Such assignments are broadly characterised by both
unknown and ill-defined inputs and outputs, with the appointment's impact on the end
product very uncertain.
In routine assignments, price can play a significant role
in the selection process, whereas in conceptual, complex and multi-disciplinary
assignments, the use of price as a selection criteria should be less significant.
The calling for open tenders under all circumstances, even
for routine assignments, is neither in an organ of State's nor the consultant's interests.
Apart from an organ of State's costs in preparing and adjudicating such tenders and the
consultant's costs in submitting tenders, such practices will favour the established large
consultancies who have greater capacity to absorb the costs. Medium and small companies
and, in particular, emerging consultants, are at a distinct disadvantage. Elaborate and
complex adjudication systems are required for the satisfactory adjudication of tenders for
consulting services.
A major problem with competitive tendering relates to the
definition of the scope of services to be performed. Consultants cannot price their
services if these are ill defined. In research and development, policy formulation, human
resource development, community-based developments and the like, the scope of services can
seldom be well defined prior to the commencement of the project or commission.
For engineering and construction projects, life cycle costs
are most critical and are largely dependent on design quality. Any potential saving in the
design fee would form only a minuscule portion of the life cost of the project and should
not be allowed to jeopardise the best value for money option on the project as a whole.
Likewise, the costs of policy research are trivial relative to the impacts of policy
decisions on the nation. The selection of consultants on the basis of price alone may well
lead to unsatisfactory, or even disastrous outcomes which could, in all likelihood, have
been avoided at insignificantly greater overall cost.
International experience regarding competitive tendering
for professional services has been mixed. In the United States of America, legislation was
introduced as far back as 1972 to outlaw competitive tendering for professional services
on construction projects. Contracts are awarded in terms of an Act which requires
government to negotiate contracts on the basis of demonstrated competence and
qualification for the type of services required, at fair and reasonable prices; the
principle being that contracts are awarded to the most qualified firm and not the least
costly. In the United Kingdom, surveys have indicated that where competitive fees (lowest
price) was the criteria for award, clients on engineering and construction contracts got
less value for money, as consultants were reluctant to consider alternatives, produced
simpler designs, resisted client changes, spent less resources on education and training
etc. Current thinking is to opt for the awarding of contracts on the basis of a quality /
price mechanism, in terms of which price, depending upon the nature of the services
required, accounts for from 15% to 50% of the points allocated.
The World Bank has no requirement for competitive tendering
for consulting services and recommends that selection be based primarily on quality. Price
forms part of the selection process only where projects are of a routine nature, and
proposals are judged to lead to comparable outputs.
The principle factors which the World Bank suggests that
should be used when deciding upon appointments are:
- The adequacy of the work plan submitted by the consultant in
response to a brief (scope of work).
- The consultant's general experience in the field of
assignment.
- The qualifications and competence of the personnel proposed
for the assignment.
- The relationship the consultant has with the client.
The specific needs of emerging consultants owned and
controlled by previously disadvantaged individuals must be taken into account. Although
this group of consultants may demonstrate competency, they are likely to lack experience
which can only be obtained through the granting of appointments.
Current practices which are being pursued to facilitate the
participation of emerging consultants and to reward consultants who have been proactive in
developing previously disadvantaged individuals within their companies or developing
capacity in emerging consultancies, include insisting that all work be performed in
association with such enterprises, accelerated roster systems, joint venture requirements,
and the scoring of adjudication points. Information provided by established firms in
support of human resource development and social responsibility programmes is extremely
difficult to verify and is seldom called for. Furthermore, such criteria frequently favour
the large firms who, for various reasons relating to scale of operation, have more scope
and opportunity to meet such criteria, particularly as their contributions are seldom
measured in terms of their turnovers. Thus, although such systems may achieve their
objectives in providing work for emerging consultants and rewarding pro-active established
consultants, it is vulnerable to window-dressing and fronting and generally favours the
larger consultancies.
Many organs of State have established panels of consultants
who have the necessary experience and expertise to provide routine services e.g. auditing,
design, contract administration, legal advice, etc. Certain appointments made to firms on
these panels have resulted in strong relationships which have endured for long periods and
a number of these panels have not incorporated any new panelists from the time that they
were originally constituted.
Insofar as auditing appointments are concerned, calls have
been made for the rotation of audits so as to prevent relationships between the auditor
and auditee becoming "too comfortable" as this may result in a loss of
independence. The office of the Auditor General in New Zealand applies the practice of
compulsory rotation of audit firms every three years. The practice of rotation on a five
year cycle is also enforced in Switzerland, both in the private and public sectors.
Organs of State, other than those functioning at national
level, often require consultants to maintain local offices within their areas of
jurisdiction. In many instances such offices do not, in fact, perform the work using their
own resources. Instead they pass it through to associated offices in other centres. This
practice is very difficult to monitor and the consequence is that appointments to
consultants with local offices do not necessarily lead to local economic development.
Given the efficiency and speed of current modes of
information transfer, the desirability of consultants being required to maintain local
offices, which may be mere facades, is questionable. It may, in fact, be submitted that
the requirement for maintaining a local office is a form of local preference, which works
against free trade within the country and is, therefore, in conflict with the
constitution.
Under certain circumstances, particularly where work of a
highly specialised nature is required, it may be advantageous to approach a particular
firm, or individual consultant, rather than to conduct a selection process. Such
appointments would, normally, be desirable where the particular consultant has been
closely involved in work similar to that required, or has expertise not widely available.
Appointments of this nature are unavoidably open to abuse and criteria and policy in
respect of sole service providers needs to be formulated.
There is a need in regard to construction projects to have
available standard sets of interlocking professional appointment documents which not only
govern the conditions of the appointment but also set out, as far as possible, the
services to be performed by consultants and the relationships which such consultants have
with construction contractors and other consultants. This is particularly necessary to
enable "non-traditional" consultants e.g. training managers, mentors, project
facilitators, contract compliance monitors, etc. to be appointed to ensure that
development objectives are met and to describe the services required of consultants where
non-traditional contract delivery options or new forms of contracts are utilised on
projects.
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Proposals
- Any system for engaging consultants should not be elaborate
to the extent that it is unwieldy to administer and cause delays in making appointments;
neither should it sacrifice time and cost for quality. It should furthermore take
cognisance of:
- the erratic stop / start nature of projects
- imbalances in supply
- budgeting constraints
- lack of exposure and experience
- increased administrative work loads
- window dressing and fronting
- cost of tendering both in terms of direct client costs and
consultant costs
- scale of project
- lack of detailed information on a project
- Officials of organs of State should prepare terms of
reference (scope of work) in as clear, unambiguous and precise a manner as the nature of
the project will permit.
- The following basic criteria should form the point of
departure for the appointment of consultants :
- competence
- fairness of work allocation
- price insofar as it does not affect quality.
- capacity to deliver
- Appointments should be made on the most appropriate of the
following methods:
- tariff appointments
(fixed scales of fees or
prescribed rates ) :
- invite two or three firms of similar sizes or capabilities
drawn from a data base, using a method that over a period of time will afford all those on
the list an opportunity of participation, to submit proposals and make the appointment on
the basis of the quality offered;
- make appointments from a rotating roster in respect of
routine assignments; or
- make appointments from a panel of consultants with the aim
of ensuring that those on the panel have equitable / balanced work loads commensurate with
their abilities and capabilities.
- competitive tendering :
- invite tenders from a short list of consultants who have
similar capabilities, capacity and experience, appropriate for the required service which
is to be performed, selected from a comprehensive data base in such a manner that over a
period of time all those on the data base will have an opportunity to tender; or
- invite any interested firm to tender on the basis of a
quality / price mechanism and reject any tenderer who does not meet a minimum quality
threshold.
- The competitive tendering route should only be followed if
the terms of reference / scope of the work can be adequately defined.
- The basis upon which firms are selected and invited to
submit proposals / tenders should be documented and submitted for review to the
Procurement Compliance Office.
- Quality should be measured in terms such as competency,
available project specific expertise, stated approach, methodology and qualifications of
key personnel.
- The criteria for admittance to panels / data bases should be
made public and firms complying with such requirements should be permitted to make
application to join such panels on an ongoing basis.
- Selection on the basis of quality, should not necessarily
mean the best quality available, but quality appropriate for the assignment.
- Quality selection criteria should be clearly stated in
enquiry documents.
- The scoring of quality should be clearly stated in
adjudication documents and should be such that, should parties who were not part of the
original adjudication team score submissions, a similar result would be obtained.
- Auditing appointments should be rotated.
- Firms of consultants owned and controlled by previously
disadvantaged individuals whose turnovers are within predetermined limits, should be
afforded accelerated work opportunities. Accelerated work opportunities for such firms
should be achieved by means of one or more of the following:
- by rotating the target group consultants at a faster rate in
roster systems.
- by setting participation goals on large scale appointments
in terms of human resource specifications to ensure that the target group consultants are
engaged either as sub-consultants for distinct portions of the work or as joint venture
partners.
- Ongoing, non project specific appointments should be made
for a specific period of time.
- Procedures should be put in place in research and policy
development appointments to control the end product.
- Standard appointment documents and standardised
documentation relating to the services which are to be performed should be prepared in
respect of routine assignments.
- Contracts with consultants should specify the type and terms
of professional liability insurance cover, commensurate with the nature of the assignment,
which is to be maintained by the consultants.
- The appointment of sole service providers should be
permitted, subject to adequate justification on the grounds of the scarcity of their
skills and experience, value for money being obtained, and the likelihood that the outcome
of the assignment would be compromised without such a selection.
- The practice of affording preference, or confining
appointments to consultants maintaining offices within a specific geographic area should,
in general, be discontinued. Only where it can be demonstrated that clear advantages would
accrue to the organs of State by the use of local consultants should the selection be
confined to them.
- Procurement Offices and Centres should report on a regular
basis to the Procurement Compliance Office regarding all appointments of consultants.
Particulars of the scope and nature of assignments, the terms of appointment and
remuneration, the estimated fee amounts and the departments, or sections requesting the
appointments should be furnished.
4.6 Language
i. Discussion
Currently, national standards are written in technical
language. As standards have become, more internationalised, the technical languages of
international standards, viz. English, French and Russian, tend to dominate world wide. Of
these, only English is of importance to South Africa. In the past all national standards
were translated into Afrikaans. In the case of compulsory standards, this is still the
case, as prescribed to the South African Bureau of Standards by the Department of Justice.
Insofar as general conditions of contract are concerned,
documents are currently available in both English and Afrikaans. Difficulties have been
experienced in the past when tenderers competing for a specific contract have been given
the option of drawing documents in either of the two languages, as errors have inevitably
crept into the documentation. These errors have, in some instances, resulted in
inequitable tenders being received.
The problems relating to the provision of documentation in
any of the official languages other than English and Afrikaans should not be
underestimated as the necessary technical language does not exist and would have to be
developed. As contract documents must convey technical information and requirements in an
unambiguous manner, the preparation of documentation in a number of languages would be
very difficult and fraught with dangers.
ii. Proposals
- All contract documentation should be prepared in English,
the international language of business.
- Guidance notes / summaries of principal features of
contracts should be prepared in official languages other than English, where appropriate,
and be issued without prejudice to tenderers.
- Provision should be made to assist tenderers with regard to
technical translations.
4.7 Parastatals as suppliers
i. Discussion
Parastatals are those institutions which are directly or
indirectly controlled by the State. Parastatals are often perceived to have an unfair
advantage in competing for contracts with the private sector on various grounds, for
example, they price on the basis of operating costs alone, they have tax concessions, they
are not obliged to earn an adequate return on their investment and they undercut the
prices of competitors despite making losses.
Where parastatals are permitted to compete with the private
sector, it is necessary to develop criteria that allows the private sector to compete with
parastatals in an equitable manner.
ii. Proposals
As a general rule, parastatals should be discouraged from
tendering in competition with the private sector. Where parastatals tender in competition
with the private sector, a percentage loading should be applied to parastatal tenders in
much the same way as a percentage loading is applied to "protect" local
suppliers against foreign suppliers.
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4.8 Registration of suppliers, service
providers and contractors
i. Discussion
There is a balance between fiscal discipline and nation
building. In the context of developing emerging suppliers, service providers and
contractors and integrating them into the mainstream of the economy, there needs to be a
balance between cost effective creation of physical assets / supply of goods, services and
works and the development of emerging business. Supplier / service provider / contractor
registration is viewed by many as a means of reducing the State's risk exposure in
engaging firms who have unproven capabilities or inadequate prior contractual experience.
Registration of contractors / service vendors is
encountered in many countries. In some developed countries, contractor registration is
used as a means of procuring goods, services and works by means of a qualification system.
This system requires firms to qualify to be included on an approved list of tenderers.
Public client bodies are able to access the list, draw up a schedule of firms which are
suitable for a project (prequalify), and seek tenders from firms of equivalent size,
capability and experience.
ii. Proposals
Registration in South Africa should be instituted as a
means of:
- compiling a data base for the packaging of contracts and
identifying target groups.
- regulating participation in public sector procurement.
- promoting good business practices and adhering to statutory
regulations and requirements.
- censuring those who transgress codes of conduct, fail to
meet their tax, levy or service charge obligations, or obtain work in a fraudulent manner.
Non-registered suppliers, service providers and contractors
should not be permitted to participate in public sector procurement activities.
Registration should be subject to the observance of a code of conduct which should, inter
alia, require that signatories undertake to:
- tender only on projects which they are capable of executing
with the resources they are able to marshall in accordance with the terms and conditions
of the contract;
- remunerate staff in accordance with relevant labour
legislation;
- pay UIF, Workman's compensation, service charges, VAT,
income tax and other taxes as appropriate.
- adhere to safety and health regulations in so far as their
workers are concerned.
- engage subcontractors under fair conditions of contract and
require them to adhere to labour standards.
- not engage in Dutch auctioning in the engagement of
subcontractors (i.e. the practice of hawking prices around in order to drive prices own).
- adhere to environmental standards.
4.9 Life cycle costing
i. Discussion
The prime objective of public sector procurement is to
achieve best value for money. Best value for money in the context of a technical component
in procurement is the optimum combination of whole life cost and quality to meet a user
department's requirements and not the lowest short term cost. Whole life cost takes into
account all aspects of cost over the lifetime of the asset, including capital,
maintenance, management and operating costs.
For complex procurements, whole life costs may be very
different from and only loosely related to initial price. In the case of capital assets,
the greater part of the whole life cost is normally incurred after purchase, the purchase
price frequently being as little as 20% of the total cost.
Goods which are not wholly consumed in the course of their
use will have to be disposed of. When some assets are no longer needed, they may have a
resale value. Accordingly, many factors need to be taken into account in an integrated
procurement process.
In engineering and construction projects, life cycle costs
are most important and are very dependent on design quality. Design quality is about
providing, within the available resources, added value over and above the merely adequate.
The procurement system needs to be structured so that quality designs and not lowest cost
design is procured, as the work of the designer has a significant impact on life cycle
costing.
ii. Proposals
- Emphasis should be placed on economy over time, not on short
term savings.
- Appropriate quality should be determined on the basis of
whole life costs as opposed to initial cost or lowest price.
- Comparative tenders should be evaluated in terms of
standards methods and procedures.
- High quality as opposed to least cost lower quality designs
should be procured in engineering and construction projects where life cycle costs
overshadow initial costs.
4.10 Quality
i. Discussion
ISO 8402 defines quality as the total characteristics of
an entity that bear on its ability to meet stated and implied needs. Quality may be
regarded as conformance to stated requirements (specification) rather than fitness for
purpose. It is achieved by executing a contract to the stated requirements. Quality can be
managed and given visibility by means of one or more of the following:
- Quality assurance e.g. SABS ISO 9000 and other such
certification schemes.
- Total Quality Management
- Development of personnel
- Bench marking
The South African Bureau of Standards has a product
certification scheme called the Mark Scheme. If a manufacturer is prepared to manufacture
commodities in accordance with the requirements of a mark specification and to apply the
required quality control measures to his factory, he may apply to the SABS to use the
applicable certification mark on his commodity. Of the some 3500 SABS specifications,
about 700 have been declared mark specifications. There are currently, approximately 3000
permit holders.
SABS ISO 9000 has strong support in some areas and forms
the basis for most certification schemes. It has, however, been strongly criticised for
being over-bureaucratic, expensive, vulnerable to variable interpretation, inappropriate
for small firms and existing as a goal rather than a means to an end. Nevertheless, it is
an appropriate basis for effective management of quality notwithstanding its reliance on
paperwork. Currently, approximately 1500 firms have been certified.
Small firms have experienced some difficulties with the
SABS ISO 9000 scheme. They have argued for a simplification of the standard and have
complained about the cost of certification. There is no doubt that the cost of
certification as a proportion of turnover for a small firm is significantly greater than
for a large firm.
In engineering and construction works contracts, many of
the problems with quality originate from poor design. A poor design may give rise to
additional costs both in the construction process and on future maintenance. To ensure
that suitable quality standards are maintained over time, particular care must be taken in
the manner in which design commissions are awarded. Incentives may need to be provided so
as to achieve high value designs.
Small and emerging manufacturers have particular problems
in achieving quality, depending, however, upon how quality is measured and defined.
Current practice is to define quality in terms of certain accepted criteria and to measure
such acceptance in terms of prescribed test methods and procedures. These are usually set
out in SABS specifications or test methods which have, to a large extent, been formulated
or drafted with the approval of industry and industry-related research and development
organisations.
It may be argued that these standards have been drafted to
suit the formal industry, and are framed around plant-based methods of manufacture and
medium to large scale enterprises which have a reasonable degree of technical competency
and testing resources. In addition, the test methods and procedures for quality assurance
are generally written for a scale of operation where sufficient quantities for statistical
purposes are manufactured, and the cost of testing by external authorities (or that
associated with the establishment of in-house laboratories) can be written off against the
volume of the article which is manufactured.
Failure by a small scale manufacturer to comply with one of
the requirements of these specifications, albeit a relatively minor lack of compliance,
means that compliance with a SABS specification cannot be claimed. Thus, in effect, many
of the current specifications present a barrier to entry to small scale entrepreneurs and
exclude their participation in particular markets.
ii. Proposals
Quality should be procured on a contract specific basis by
means of one or more of the following strategies:
- The full and proper specification of requirements.
- Improving, reviewing and updating procurement documentation
on a regular basis.
- Taking cognisance of whole life costing in the adjudication
of tenders.
- Utilising techniques such as value engineering when deciding
upon procurement strategies.
- Prequalifying tenderers where exceptional quality is
required.
- According preferences to tenderers who offer products which
have the SABS mark or Agrément certification or are manufactured in accordance with
quality assurance specifications such as SABS ISO 9000 providing that such measures do not
exclude products which may otherwise be acceptable.
- Requiring tenderers to submit their plans for maintaining
and improving quality together with their tenders, or to operate in accordance with Total
Quality Management Principles, should such measures be deemed necessary to achieve the
desired outcome.
- Awarding contracts in terms of a quality / price mechanism
which evaluates both the price and quality of the offer.
- Accepting tenders only from those firms whose names appear
on a quality register.
- Requiring consignment inspection.
The criterion in applying such strategies should be that:
- The measures are justifiable.
- The measures will lead to a quantifiable improvement or
level in quality.
- The resultant quality is appropriate to satisfy end user
requirements as opposed to the best quality available.
- The measures should not promote captive markets.
Prequalification should not be utilised to limit
competition or to reserve work for specific groupings. It should only be used to achieve
an appropriate level of quality.
Organs of State should consider alternative forms of
testing to confirm compliance and relax standards, where appropriate, to facilitate the
participation of emerging or local enterprises.
Strategies to overcome difficulties relating to small scale
manufacture should include:
- monitoring of the performance of manufacturers by the State
in terms of sampling plans.
- the establishment of centralised testing
centres.
- formulation of specifications which describe product
properties in terms of their physical properties rather than by reference to a series of
standards.
- the development and specification of simple site (point of
manufacture) tests which confirm the acceptability of products for their intended purpose.
- a review of testing and acceptance tests, criteria and
norms.
- the setting of appropriate standards for different
applications of a manufactured article.
- education and training of manufacturers.
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4.11 Measures to combat corruption
i. Discussion
In the context of public procurement, corruption usually
comprises fraudulent behaviour by persons concerned with the procurement process leading
to losses for an organ of State. Usually, there is some form of collusion between the
buying and the selling side: responsible officials on the public procurement side request
or are induced to accept favours from tenderers or contractors. Such practices are often,
but not always, criminal; they are always immoral and improper in terms of good
procurement practice. Fraudulent actions are sometimes confined to one side of the
procurement transaction, such as when tenderers collude to "rig" tenders or when
officials misappropriate public property, or assets.
Corrupt actions within organs of State may include:
- preparing slanted specifications
- approving inappropriate tenders
- tampering with tenders
- breaching confidentiality
- taking bribes
- lax contract administration
- use of position to obtain a private benefit.
Corrupt actions by suppliers / service providers /
contractors may include:
- collusion
- influencing the choice of procurement method and technical
standards
- inciting breaks of confidentiality
- influencing the work of evaluators
- offering of bribes
- over or under invoicing
- "fast pay" action
- inaccurate disclosures
Competition and transparency serve to combat corruption to
some extent. Other measures, however, need to be instituted to minimise corruption.
ii. Proposals
The following preventative measures should be adopted:
- The establishment of codes of conduct for suppliers /
service providers / contractors and procurement officials.
- The publicising of anti-corruption programmes by means of
staff training and meetings.
- The institution of routine check points at the pre-award
stage, or in the post-award stage, on the measurement of performance by contractors or on
contract amendments.
- The performance of internal audits on specific items.
- The implementation of a "whistle-blower" system
which allows and even encourages officials to inform on each other regarding instances of
fraud or misconduct.
- The encouragement of strict observance of procurement
regulations, particularly those relating to the documentation of the processes.
- The provision in tender documents for the disqualification
of tenderers who attempt to influence the award of tenders.
- The deregistration / de-barring of offending suppliers /
service providers / contractors from participation in public sector procurement for a
period of time.
- The provision of opportunities for suppliers / service
providers / contractors to raise objections concerning the status / practices of their
competitors.
4.12 Early payment cycles
i. Discussion
Access to finance is one of the most urgently felt needs
among emerging businesses. The specific problem of delayed payment to suppliers and
contractors often aggravates the financial position of small enterprises and further
hampers their access to funds. Although the present tendering conditions provide for
payment within 30 days, the actual period is often significantly longer than this.
ii. Proposals
- Payment systems should be streamlined and
rationalised.
- Electronic payment systems should be introduced.
- The audit procedures of interim payments in engineering and
construction works contracts should be revised.
- Interest at rates above the bank overdraft rates should be
paid to suppliers / service providers / contractors in respect of overdue payments.
4.13 Financing of suppliers, service
providers and contractors
i. Discussion
One of the major challenges facing many small, medium and
micro enterprises and emerging companies is their inability to attract sufficient debt and
equity capital to fund the growth of the enterprise. As enterprises succeed in obtaining
larger contracts their ability to internally finance themselves diminishes. Many of these
firms, while still growing, have not reached the creditworthy stage usually required by
traditional financing sources. Others, having utilised their existing credit lines, find
that their bank is unwilling to extend them further credit, even for the performance of a
contract.
ii. Proposals
The procurement system should make provision for:
- Mechanisms to facilitate factoring of payment certificates.
- Cession agreements with suppliers.
- Early payment cycles.
- Appointment of project administrators to facilitate early
payment cycles in engineering and construction works contracts, where this measure is
justifiable.
- Making monies available to third party management support
providers to enable them to facilitate payments on a fortnightly basis to emerging
contractors in certain engineering and construction works development
programmes.
4.14 Period contracts
i. Discussion
The contract strategy for period contracts in the past has
tended to favour the maximisation of the quantities of goods, services and works required,
the contract period and the geographic area served by such contracts. This policy is
generally not conducive to small, medium and micro enterprise participation and does not
geographically spread economic activity. There is accordingly a need to revisit the policy
relating thereto and to unbundle such contracts.
A contract strategy in respect of single versus umbrella
(multi-activity) contracts or facilities management needs to be determined. Furthermore,
attention needs to be paid to the determination of the optimum contract period, as long
period contracts:
- afford departments and providers of goods, services and
works greater time and incentive to understand and co-operate with one another.
- allow suppliers to recover the cost of any investment (e.g.
training, plant or new technology) required for the contract.
In circumstances where delay in delivery can result in
consequential costs being incurred or where the commodity is not always available,
consideration needs to be given to the awarding of contracts to two or three suppliers /
service providers to permit consumer organs of State to have some flexibility. The most
favourable tender will be accorded preferred contractor status and the secondary and
tertiary contractors would only be approached should the preferred contractor be unable to
supply or deliver. Consideration can also be given to implementing a system of performance
guarantees in terms of which a cash deposit is provided at the commencement of a contract
by the preferred contractor. This cash deposit can then be used to compensate the State
for any cost premiums arising from non-performance.
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ii. Proposals
Period contracts, in order to permit small, medium and
micro enterprise participation, should be structured taking cognisance of the following :
- Contracts should procure items in quantities suitable for
execution by small, medium and micro enterprises as prime contractors
- Human resource specifications can be used as a tool for
unbundling.
- Small, medium and micro enterprises who match prices of
large contractors / service providers / suppliers could be permitted to provide such items
as alternative suppliers.
Period contracts can be used as a means of equipping
emerging contractors / manufacturers with plant. In some circumstances, contracts should
be awarded to two or three suppliers / service providers with one of these contractors
being accorded preferred contractor status.
4.15 Emergency Procurement
i. Discussion
Situations arise from time to time, wherein life, property
and human well-being are threatened and rapid action is required to remedy, or alleviate,
the situation, which may have resulted from among others :
- a natural event, such as a flood, or an earthquake
- the failure of a facility or service
- an accident
- war or civil commotion
- failure, over an extended period, to carry out essential
maintenance and upgrading of a facility.
When a situation requiring rapid remedial action arises in
respect of a facility for which an organ of State is responsible, it is essential that
such organ should have readily available the means of procuring the services of competent
contractors, suppliers and service providers in the shortest possible time. The extent and
nature of the services required will probably be known only in broad terms, but this
cannot be permitted to delay the commencement of delivery.
Criteria need to be set and certification systems to be put
in place to ensure that this system of procurement is not abused and only used in specific
circumstances.
ii. Proposals
A Rapid Delivery Procurement System should be established
which :
- enables contracts to be awarded within one month of
permission being obtained to proceed, whilst being transparent, equitable, fair, cost
effective, and competitive.
- not place organs of State at undue risk with respect to
failure to deliver, cost overruns or cost premiums.
- be flexible enough to accommodate Reconstruction and
Development Programme principles and socio-economic objectives.
- be easily audited.
- assign clear responsibilities for the parties which are
involved.
The criteria warranting the use of the Rapid Delivery
Procurement System for an emergency should be that one, or more of the following
conditions exist, or there should be an imminent danger of it about to exist :
- The possibility of human injury or death.
- The prevalence of human suffering or deprivation of rights.
- The possibility of damage to property, or suffering and
death of livestock and animals.
- The interruption of essential services, including
transportation and communications facilities.
- The possibility that the security of the State could be
compromised.
- The possibility of serious damage occurring to the natural
environment.
- The possibility that failure to take necessary action may
result in the State not being able to render an essential community service.
- The prevailing situation, or imminent danger, should be of
such a scale and nature that it could not readily be alleviated by interim measures, in
order to allow time for normal procurement systems to be used.
- Available details of the nature and extent of the work and
services required should be insufficient to permit an accelerated, or normal procurement
system to be used.
The accounting officer in the organ of State wishing to
utilise Rapid Delivery Systems should certify that the emergency meets the abovementioned
requirements.
4.16 Stimulation of local economies
i. Discussion
Local economic development is an area of great promise, but
which is fraught with difficulties owing to the skewed nature of the South African
economy. The major factor in this imbalance is the economic dominance of large
corporations. Perhaps the most serious consequences is the limit to ongoing, sustainable
job creation.
While small businesses have burgeoned in recent years, they
have concentrated on the retail sector. This is due to the limited availability of
technical skills, lack of access to primary resources (such as land and capital) and price
controls on raw materials which reduce the competitiveness of small firms. The challenges
confronting proponents of local economic development are enormous.
Clearly government has to focus beyond administrative and
service provision roles and take on the role of economic catalyst. Such a function should
lead to new practices in procurement which will promote the development of small
manufacturing, service and construction enterprises.
Preferences, in the past, have been utilised to protect
regional industries in much the same manner as the local tenderers are afforded protection
from foreign tenderers. Such practices can, however, have severe impacts on neighbouring
areas, as such preferences cause market distortions. Typically, those protected by such
preferences inflate their prices in the local economy and dump their products at lower
prices in neighbouring areas. Furthermore, such preferences are difficult to administer.
The selection of contract strategies, the packaging of
contracts and the employment of affirmative procurement practices can, on the other hand,
tip the scales in favour of the local economy. In particular, Affirmative Procurement
which seeks to engage the participation of small, medium and micro enterprises is to a
large extent self targeting towards local enterprises.
ii. Proposals
- Contract strategies, the packaging of contracts and
affirmative procurement practices should be used to stimulate local industries.
- Preferences outside of a National Procurement Framework for
local suppliers, service providers and contractors or local content, designed to advantage
those located in specific geographical areas over neighbouring regions within the
boundaries of South Africa, should not be permitted.
- Local authorities should implement contractor / manufacturer
development programmes in their areas of jurisdiction in order to develop target group
enterprises who are capable of participating in participation programmes.
- Local authorities should interface with national and
provincial organs of State in respect of engineering and construction contracts, in order
to secure the contract strategy, and delivery and targeting options which best serve the
local economy on contracts put out by such bodies.
- Local and regional authorities should establish data bases
of local suppliers, service providers and contractors in order to award contracts having a
low financial value to such enterprises where a less formal tendering system is permitted.
4.17 Contracts having low financial
values
i. Discussion
The present system of obtaining telephonic or verbal price
quotations (no tenders are invited) for contracts under a certain value - R20 000 in the
case of the State Tender Board (usually from a minimum of three suppliers), excludes many
of the emerging small, medium and micro enterprises. The system is dependent on a data
base of approved suppliers. Any business not on the approved list is excluded from the
market.
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ii. Proposals
- Suppliers of goods and services falling into this category
of contract should register with the relevant Procurement Office / Centre for the category
of goods and services for which they wish to be registered.
- New applications for such registration should be advertised
in the press and data bases should be updated at regular intervals.
- Quotations should be invited from a number of suppliers on a
rotating basis.
4.18. National Standards
i. Discussion
National Standards, in the current South African context,
is the collective term for Specifications, Codes of Practice and Test Methods which are
published by the South African Bureau of Standards as national documents.
Standardisation is becoming more and more
internationalised. The Agreement on Technical Barriers to trade within the WTO Agreement
of Tariffs and Trade is also very explicit in its requirements for the harmonisation of
standards on a regional and international basis. These trends are given further impetus by
the massive harmonisation exercise currently underway in the European Union (EU). A
similar drive is expected to take place within the Asia - Pacific Economic Community
(APEC) in the near future.
South Africa cannot stand aloof from these developments.
International trade is vitally important. Accordingly, standards should become more
internationalised. In the electro-technical sector about 40% of the national standards
have been aligned with International Electro-Technical Commission's (IEC) standards. In
the non-electro-technical field approximately 15% have been aligned with the International
Organisation for Standardisation's (ISO) standards, and in the telecommunications field,
virtually all national standards are aligned with the international standards, mostly
European Telecommunication Standards Institute's (ETSI) standards.
Construction standards have historically been based on
British standards. As Britain has now become part of the European Union, it follows that
construction standards should be aligned with that of the European Union. (The cement
industries have already adopted the European standard and are manufacturing according to
this specification, SABS EVN 197-1, and have adopted the nomenclature for cement contained
therein).
ii. Proposals
- Standards should become more
internationalised.
- Construction material standards should become increasingly
aligned with those of the European Union.
4.19. Labour Issues
i. Discussion
Contractors, suppliers and service providers are, in so far
as their labour is concerned, responsible for complying with the provisions of various
pieces of legislation such as: the Labour Relations Act.; the Workmen's Compensation Act;
Unemployment Insurance Fund; and Occupational Health and Safety Act. Compliance with such
legislation has a direct cost impact on suppliers. Frequently, unscrupulous employers fail
to comply in order to maximise profits, or have insufficient capital to meet these
financial commitments.
Labour standards have traditionally been enforced through
courts of law, either in terms of criminal proceedings, or in terms of civil proceedings.
Inspectors have been empowered to confirm and enforce compliance with such standards. The
system is, for various reasons, cumbersome, ineffectual and time consuming. Frequently,
cases are inconclusive or result in a warning, a suspended fine or an insignificant fine
being handed down.
Criminal proceedings should not be the primary mechanism to
encourage and enforce compliance with labour-standards. There should be a range of
remedies available to encourage and enforce compliance in an expedient manner, some of
which could relate to the procurement system.
On engineering and construction works contracts, because of
the historic distinction between the building and construction industries, minimum wages
differ between the industries. The problem is further complicated by the collapse of
Industrial Councils in some regions. The Framework Agreement for Labour Intensive
Construction and Community-based Public Works Programmes further complicates matters. For
example, at present, two companies, the one allied to the building industry and the other
to the civil engineering industry could quite easily be tendering for a building
development. The civil engineering contractor is required to price for his locally
recruited labour being paid the rates determined for the Magisterial district in question,
whereas the building contractor can price his tender using the same labour but on the
minimum going rate should the area not be covered by an Industrial Council. If
another project "just up the road" is being administered in terms of the
Framework Agreement, there is yet another wage rate for the same activities. Likewise,
different wage rates and service conditions may exist on Community-Based Public Works
Programmes which are administered by the community.
It is submitted that the status quo does not permit fair
and equitable tender price comparisons to be made, is confusing, does not lead to the
development of sustainable community enterprises and encourages contractors to engage
subcontractors or informal sector enterprises who do not observe minimum wages, in
order to remain competitive. A common wage order for all those engaged in construction
activities, which takes account of regional and project specific variations and is based
on the classification of job activities within which there may be grades of skill, would
go a long way to resolving the aforementioned problems. Payment linked to productivity as
opposed to time spent on the job could be permitted for categories of work for which
labour may be substituted for machines in order to create jobs e.g. excavation activities,
construction of road base courses, surfacing of roads, etc.
In countries where discrimination has been practised,
particularly on racial lines, affirmative action programmes have been implemented to
reinforce both equal employment and business opportunities with a view to removing
disparities in employment practices and business ownership between different groups of
people, usually on the basis of race and gender. Affirmative action, when properly
applied, should reinforce equal opportunity concepts and should not imply
"preferential treatment" or "reverse discrimination". Affirmative
action endeavours to ensure that all segments of society have the same opportunity to
participate on the basis of open competition and to advance according to relative ability.
Various proposals have been made regarding employment
equity in so far as public sector procurement is concerned. These include:
- Deregistration of contractors who do not have employment
equity programmes or continue to embrace discriminatory employment practices.
- Prequalifying tenderers on the basis of compliance with
employment equity requirements.
- Selecting tenderers for the award of contracts on the
strength of their equity programmes/plans
- According preferences to tenderers who have implemented
employment equity programmes in their companies.
- Requiring all tenderers to specify the following in their
tenders in order to assess the usefulness of the tendering process in furthering broader
social aims:
- the number of employment opportunities created, levels of
remuneration, and probable race and gender of employees;
- the nature and extent of probable human resource
development;
- the race and gender of owners and managers.
Some have argued for quotas and targets to be established
in terms of national legislation to implement affirmative action. Others in turn have
argued for companies to become companies which may be viewed as being progressive in their
orientation and conduct.
What needs to be established is which route will best serve
the interests of employment equity viz., tax incentives, procurement activities or
legislation or a combination thereof. Furthermore, the practicalities associated with the
implementation of employment equity by means of such routes needs to be established. For
example, should it be decided to accord preferences in public sector procurement for
aspects of employment equity, employment equity will have to be defined, quantified,
measured and audited in order to establish compliance during the performance of the
contract in such a manner that companies of different sizes are not unfairly treated.
(Small companies, because of their size in terms of turnover and employee compliment may
subscribe to employment equity principles but may take years to implement such policies
due to low turnovers in their employee complement and slow growth in the size of the
company).
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ii. Proposals
- Suppliers, service providers or contractors who abuse labour
standards should be disciplined by being deregistered and excluded from participating in
public sector procurement for a period of time.
- Contracts in contractor development programmes should be
awarded to emerging contractors only after an independent party has verified that the sum
tendered has the potential to meet minimum labour standards.
- A common wage order applicable to all engineering and
construction works projects, which is flexible enough to accommodate payment on the basis
of outputs in specific circumstances, should be strived for in order to remove market
distortions and enable tenderers to tender on an equitable basis.
- Employment equity should be linked to procurement only in
instances where it can be adequately defined, quantified, measured, verified, audited and
be implemented in a manner in which companies of different sizes are equitably treated.
4.20. Short term service contracts
i. Discussion
Where there is a shortage of particular skills in an organ
of State or a short term crisis has developed, short term service contracts for some
particular service may be required. Procurement in such circumstances can be very
sensitive.
ii. Proposals
Short term service contracts should embrace the following
set of principles:
- The contract should make provisions for technology transfer
and capacity building.
- The service provider should follow sound environmental
principles.
- Officials and employees of organs of State should not be
prejudiced by such appointments.
- Service providers should be accountable to the people they
service and be responsive to the needs and problems of users.
The performance of service providers should be monitored,
and only those service providers who have the competence, capacity and availability of
suitable personnel be entrusted with such contracts.
4.21. Subcontracting issues
i. Discussion
Subcontractors have very little negotiating power with
prime contractors due to the fact that there is always a "next job syndrome";
non payment by the prime contractor; and victimisation.
Some of the problems expressed by subcontractors include
the "Hawking" of prices submitted to prime contractors by them in order to
obtain lower prices from others (i.e. the practice of Dutch Auctioning); the risk of
non-payment; the use by prime contractors of hard earned subcontractors' monies as an
interest free overdraft facility and prime contractor bodies frequently representing
subcontractor interests at forums.
Invariably, as employers only have a relationship with the
prime contractor, they regard subcontracting issues to be the prime contractor's problem
and of no concern to them. Subcontracting is an effective means of involving small, medium
and micro enterprises in public sector procurement activities. As such, the plight of
subcontractors cannot be ignored. Accordingly, measures need to be taken to address the
shortcomings in the current subcontracting arrangements, particularly in respect of
engineering and construction works contracts. Such measures could include some or all of
the following:
- The establishment of Trust Funds or other such secured
payment routes.
- Mechanisms to deal with late payments.
- Protection against prime contractor insolvency.
- Outlawing of Pay-when-Paid practices; the use of unfair
set-off; provisions which seek to prevent access to adjudication or frustrate its
conclusions.
- Introduction of fair conditions of subcontract.
- Introduction of Alternative Dispute Resolution procedures in
standard forms of subcontract.
ii. Proposals
- The conditions of subcontract should be regulated in public
sector procurement in order to ensure that subcontractors are engaged in terms of fair
conditions of contract.
- Contractors who contravene the proposed provisions contained
in the code of conduct relating to subcontractors should be deregistered.
- Secured payment routes should only be considered should the
other measures which have been proposed not address the root causes of late, or non-
payment.
4.22. Allocation of risk and change
management
i. Discussion
Risk cannot be eradicated, but can be managed; it is better
to be proactive rather than reactive. Organs of State should identify and access
procurement risk on a case by case basis. As a general rule, the aim should be to allocate
risks to those best able to manage them provided that the cost of transferring them to
that party does not exceed the cost of retaining them. In many cases, this will be the
supplier, contractor or service provider. Transferring risk to these parties may provide
them with an incentive to improve their performance. Forcing them to accept risks which
they have no chance of managing is, however, likely to be both costly and futile. Where
there is doubt about where a risk should be, organs of State should compare the cost of
transferring it with the cost of retaining it themselves.
In engineering and construction works contracts, the risks
which need to be considered include construction risk; delays, performance and operational
risks; commercial risks; and political, legal and financial risks in various forms. Risk
management can involve:
- identifying preventative measures to avoid a risk or to
reduce its effects.
- proceeding with a project stage-by-stage, initiating further
investigation to reduce uncertainty through better information.
- considering risk transfer in the contract strategy, with
attention to the motivational effects, and the control of risk allocations.
- considering risk transfer to insurers.
- setting and managing risk allowances in cost estimates,
programmes and specifications.
- establishing contingency plans to deal with risks should
they occur.
Risk management will not remove all risk from projects; its
principal aim is to ensure that risks are managed most efficiently. Inevitably, certain
risks will have to be borne by organs of State. Allowances for residual risks should be
made in estimates of time and cost.
Contract documents are tools for managing risks. Their
purpose is to determine the consequences of particular risks which have been identified.
Contracts should accordingly clearly define the respective responsibilities of the parties
and be flexible enough to deal with inevitable changes. The management of changes to
requirements presents a special challenge. The importance of the clear allocation of risk
and the management of change cannot be underestimated, particularly in contracts of a
developmental nature, where third party management support is involved. Clear guidelines
in this regard are required.
ii. Proposals
- Organs of State should identify and access procurement risk
on a case by case basis.
- Risks should be allocated to the party best able to manage
them.
- The State should bear the cost of risks where the cost of
transferring them is greater than that of retaining them.
- Organs of State should exercise risk management in a
proactive manner and should make budgetary allowances to cover residual risks.
- Contract documentation should clearly and unambiguously
assign risks to the contracting parties.
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4.23. Insurances
i. Discussion
Insurance is not a substitute for effective risk
management. Insurance is only intended to deal with measurable or known risks and shifts
the impact of loss so as to reduce it. Insurance cannot deal with uncertainty itself and
cannot prevent loss.
Most physical risks can be insured against. For example, in
engineering and construction works contracts a contractor can have some of his risks
covered by effecting insurance such as Contract Works Insurance; Public Liability
Insurance; SASRIA Special Risks Insurance; Removal of Support insurance; general insurance
cover for plant owned or hired by them; or Professional Indemnity Insurance.
Many standard forms of construction contracts require the
contractor to effect Contract Works and Public Liability insurances and to extend such
cover to subcontractors. Some require that in addition, contractors effect SASRIA and
Removal of Support Insurance. Most National and Provincial Departments require contractors
to effect the relevant insurances. On the other hand many public utilities and local
authorities have their own Contractor's All Risk policies under which the majority of work
put out to tender is automatically insured through their Principal Controlled Insurance
which may comprise a mix of conventional and self insurance. In such cases, contractors
need only to effect any supplementary insurance cover such as insurance of construction
plant and equipment, including tools, office and other temporary structures and contents,
except those intended for incorporation into the Works; insurance in terms of the
provisions of the Compensation for Occupational Injuries and Diseases Act of 1993; motor
vehicle liability insurance; and insurances for the manufacture / fabrication of portions
of the works at premises other than the contract site.
There are many advantages to both the State and emerging
contractors / small, and micro enterprises should the State have Contractors All Risk
policies under which the majority of work put out to tender is automatically insured by
them. In contractor development programmes, insurance excesses can in some instances be
higher then the amount of profit on labour only contracts and as a result can cause a
contractor to incur financial losses to the extent that he cannot continue with the
contract.
The State self-insures its own assets. As a result, many
uncertainties exist regarding insurances on the renovation and repair of buildings and
what cover contractors have when effecting repairs.
ii. Proposals
- Organs of State should either insure for procurement related
physical risks, establish risk management programmes or make advance provision for losses
associated with such risks.
- Suitable arrangements should be made to ensure that
insurance related excesses in the case of emerging small and micro enterprises do not
cause such businesses to fail.
- Organs of State should investigate the benefits of Principal
Controlled Insurance for their given circumstances.
4.24. Guarantees
i. Discussion
Client bodies are exposed to a certain amount of risk
particularly in respect of engineering and construction works contracts, to the extent
that contractors may fail to perform or provide a defective product. This can have direct
financial implications in so far as rectification and completion of the works is
concerned, and consequential financial implications resulting from the delayed occupation
or possession of the assets that are created. Delayed completion also inevitably results
in increased construction costs. As a result, client bodies require contractors to lodge a
security guarantee and retain an amount from interim certificates in order to cover some
of this risk. Prime contractors in turn, in order to minimise their risk, often require
subcontractors to provide similar guarantees. (Guarantees are seldom called for by the
State Tender Board in respect of contracts involving the procurement of goods and
services; certain local authorities require guarantees for most contracts involving goods
and services).
A performance bond may be described as a three party
contract between the employer, the contractor and the surety, guaranteeing performance by
the contractor with a stated financial benefit in the event of non-performance. Retention
is held by the employer as an insurance for the correction of defects not attended to by
the contractor. Construction guarantees provided for in some private sector building
contracts, covers more than a performance bond and effectively places insurance against
failure to perform and failure to rectify defects at a single source.
Performance bonds should not be confused with retention
monies which are intended to cover the cost of making good defects in construction.
Performance bonds are intended to cover the additional cost of completing the works where
the works are interrupted prior to their completion due to the termination of the contract
for reasons which may include contractor insolvency, or failure to perform.
In so far as small, medium and micro enterprises / emerging
construction businesses are concerned, this presents a significant financial hurdle to
overcome in the pursuit of being awarded contracts. Furthermore, such enterprises, because
of their greater risk factor presented to sureties, usually have to obtain their
performance bonds at significantly higher rates than the large well established firms.
Accordingly, they not only struggle to secure bonds, but have to do so at a cost premium.
Specific strategies and innovations are required to enable
small, medium and micro enterprises / emerging construction businesses to obtain the
necessary performance bonds. The provision of tender guarantees also needs to be
considered, particularly where tenderers compete on the basis of both price and
development objectives. Tender guarantees may also be necessary to afford organs of State
some degree of protection from irresponsible tenderers. Such guarantees should, however,
not be set so high as to discourage tenderers from tendering.
ii. Proposals
- Performance guarantees should be commensurate with the
degree of contractual risk to which organs of State are exposed.
- Tender guarantees which are not unduly high, should be
called for in large and complex contracts in order to minimise the submission of
irresponsible tenders.
- Performance guarantees should spread the cost of the risk of
failure between the contracting parties and should not be set at such a level that all the
State's costs relating to such failure are likely to be recovered.
- Adequate provision should be made in all engineering and
construction works contracts to ensure that monies are available to rectify defects.
- Performance bonds in engineering and construction works
contracts should be waived only in respect of low value, low risk contracts or where the
risk of failure is carried in an acceptable manner by a third party.
4.25. Training in construction projects
i. Discussion
It is generally acknowledged that the lack of skills is one
of the four major constraints facing small and micro enterprises. Training in the
construction industry has historically been indirectly linked to procurement through the
Manpower Training Act of 1981 which permitted the minister to declare a scheme created by
any group or association of employers, for the training of employees within given
parameters, to be binding in respect of the industry in which they are engaged. This piece
of legislation has led to the creation of Training Schemes managed by organisations who
are empowered to levy compulsory payment from employers. Thus the cost of training is
included in the contract price of participating employers.
In the construction industry, Training Schemes are
administered by the South African Federation of Civil Engineering Contractors and the
Building Industries Federation of South Africa. Participating contractors include the cost
of levies in their tender prices in order to have access to training of their employees.
Emerging contractors, not being members, do not price for training as they do not pay
levies. As a result, they frequently have no access to industry-based training.
On projects which are designed to engage marginalised
sectors of society in construction activities, the training costs are an order of
magnitude higher than the aforementioned levies; typically allocations of between 5% and
10% of the contract price are called for. Such training raises a number of issues:
- should the funding of training be sourced from project
budgets; if so should it be on a project specific or on a regional / provincial / national
programme basis?
- who should control and oversee expenditure?
- who decides on what training should be procured and on what
basis?
- how do you measure value for money provided by training
providers?
- what type of training should be provided?
- how do you quantify training requirements for a particular
project?
Another issue relating to procurement is that of value for
money. The determination of value for money on a project specific basis is difficult to
determine as the necessity and impact of such training in the long term is difficult to
access, particularly where new capacity is generated.
[ Top ]
ii. Proposals
The distinction should be made between short term
RDP-related development objectives, which are project-related but programme-driven, and
the medium / long term human resource development of the industry. Training should be
integrated with the product. As such training needs should be determined jointly by organs
of State and industry. Training should be undertaken on a programmed approach and not on a
project specific basis. Training should be regionalised and managed by implementing
departments or their delegated agents in co-operation with employer bodies / associations
on a provincial basis.
Training should be measured in terms of regional structured
training plans (human resource development strategies) in order to establish value for
money.
Accordingly, provision for training, except for on-the-job
training, should not be made in construction contracts. The services of training providers
should be procured in the same manner as that proposed for the appointment of consultants.
4.26. Adjudication of engineering and
construction works tenders involving emerging / community contractors
i. Discussion
Emerging / community contractors who undertake to perform
certain construction functions and require third party management support to execute their
contracts should be afforded some protection from tendering unrealistically low rates. The
acceptance of unrealistically low prices will inevitably lead to failure of such
contractors and increased costs to complete contracts. Furthermore, as labour is usually
the largest cost component of such contracts, low tender prices will invariably translate
into unacceptable wage payments to workers.
In most contractor development programmes outside of South
Africa in sub-Saharan Africa, contractors are not selected by means of competitive
tendering. A common way to select contractors for participation in programmes is to invite
members of the public to fill out an application for training. Applications are processed
and participants are selected on the basis of criteria which are dependent upon the
objectives of the programmes. Graduates from training courses are then offered fixed-rate
period contracts. Further fixed-rate period contracts are granted should they demonstrate
satisfactory performance. This system has not succeeded in fostering an entrepreneurial
spirit amongst contractors, who invariably remain entirely reliant for their livelihoods
on work handed to them in this manner.
International donor bodies have tried to break out of this
deadlock by insisting that contracts be awarded on the basis of competitive tendering and
have advocated the acceptance of tenders on the basis of a banded price around an
estimate, which is made known prior to the closing of tenders. Tendering consequently
degenerates into "estimate plus" bidding.
ii. Proposals
Any system which is adopted to award contracts to emerging
/ community contractors should be based on the following:
- contractor selection should be on the basis of demonstrating
credentials through the submission of tenders.
- prices should be controlled but not imposed.
- participants should learn to price work from the outset.
Tenders should be adjudicated in terms of an estimated
price, prepared by a person responsible for either preparing the contract documentation or
providing third party management support. Tenderers who price below a predetermined
percentage below the estimate should be automatically rejected. Tenders should be awarded
to the tenderer whose price is immediately above the cut off value. In the interests of
transparency the method of adjudication should be made known to tenderers. The estimate
should, be kept secret and be only read out and recorded immediately prior to the public
opening of tenders.
4.27. Environmental Issues
i. Discussion
Organs of State can encourage their suppliers, service
providers and contractors to behave in an environmentally friendly way by integrating
their concern for the environment with their procurement activities.
Organs of State should implement policy which will
influence the behaviour of vendors to:
- comply with all environmental legislation
- offer less environmentally damaging products and services
- develop products from recycled materials.
Procurement policy may require vendors to provide proof of
their commitment to environmental protection. This may take the form of statements on the
steps companies are taking to reduce their impact on their environment, or alternatively
to demonstrate that they are not in breach of any statutory requirements relating to the
environment.
ii. Proposals
Organs of State should:
- buy only from vendors who are in compliance with all
environmentally-related legislation
- promote environmental awareness amongst suppliers, service
providers and contractors
- favour procurement of less environmentally damaging products
- discriminate in favour of products made from recycled
materials
- require that suppliers limit packaging to the minimum
necessary to protect the items supplied
- favour products which provide information about their effect
on the environment
- develop the environmental awareness of government officials
- develop and maintain a database of vendors in which
information relating to their environmental conduct is retained
- develop and promote a code of conduct for vendors
- develop a policy with respect to the use of products
containing asbestos
Suppliers, service providers and contractors should:
- comply with the requirements of all environmental
legislation
- require that their suppliers and sub-contractors in turn
comply with all environmental legislation
- consider the environmental impact of their products over
their full life cycle from 'cradle to grave'
- minimise the use of energy, non-renewable resources,
hazardous chemicals and toxic substances
- maximise the use of recycled materials
- minimise the production of waste
- dispose of all wastes in an environmentally responsible
manner
- not offer products or packaging containing CFCs, HCFCs,
halons, carbon tetrachloride and other ozone depleting substances.
5. CONCLUSION: THE WAY FORWARD
Studies have indicated that government expenditure is of
such significance that it is a vital component of economic and social progress and as such
plays an important role in the transformation process. To overcome the legacy of
discrimination and neglect, South Africa must, above all, create conditions for
sustainable growth. Any new procurement policy needs to be sensitive to the urgent demands
of addressing the present socio-economic imbalances within the context of a global economy
and the need to apply accepted principles of good governance. Clearly, South Africa needs
to create and adopt new and imaginative procurement policies that will address the
country's requirements for equity and social upliftment while, at the same time, allowing
it to be internationally competitive .
The aim of this Green Paper is to give all South Africans
the opportunity to contribute to the change process that will have a profound effect on
all. South Africa is facing enormous challenges, both locally and internationally, as it
opens the economy to the combined impact of global investment and free trade regulations.
It is envisaged that a coherent and adequately resourced procurement policy will
contribute to the national objectives of:
- developing and utilising the country's human resources
potential to the full
- a well-developed business sector capable of participating
fully in the new South African economy
- an improved quality of life for all
- improved international competitiveness for South African
economic activity
[ Top ]
This Green Paper sets out the key elements of the
Government's new strategy for procurement. In addition, the evolving institutional
framework through which the strategy should be implemented has also been outlined. It
should be clear that all these proposed polices, institutions and systems cannot be
developed without government adopting a vigorous approach to implement this framework. The
government has put in place a process, involving public consultation, aimed at developing
the best policies to achieve it's goals. The Green Paper process, should result in the
formulation of new Procurement Policy for South Africa, ultimately to be published as a
White Paper.
It is recognised that the subject matter of this policy
needs to be considered with other related Government policies and initiatives in an
integrated and structured manner.
This Green Paper has sought to identify the key issues to
be addressed by government policy and to suggest some of the available options. The Paper
is designed to raise questions about these options, by discussing the merits or otherwise
of adopting them, in an effort to stimulate public debate. It is not a statement of
government policy, but outlines issues and options to which the South African public are
invited to respond and make contributions that will eventually help shape government
policy. The culmination of the process will be the publication of a White Paper and the
beginning of legislative reforms pertaining to procurement.
Constructive participation will enable Government to
respond more effectively to the needs of South Africa in this important area of reform.
The Green Paper has drawn on the experience of other societies and nations who have
grappled with similar issues. The common features include building on existing strengths
and restructuring government policies and programmes to support the principles of Growth,
Employment and Redistribution as outlined in the macro-economic strategy. However,
ultimately, it is for all South Africans to determine the best course of action to meet
the country's challenges and to accept joint responsibility for implementing the changes
required.
The desired output of this process is to develop world
class professional procurement polices and systems while ensuring the productive
participation of previously disadvantaged persons in a manner that promotes
entrepreneurship and the adoption of best practice within all South African businesses
while improving international competitiveness.
Although policy choices are involved, the implementation of
this new vision is the responsibility of all South Africans. There are no shortcuts if the
country is to make the transition to full economic maturity.
|
AFFIRMATIVE
PROCUREMENT IN BRIEF
Affirmative Procurement in a practical and pragmatic manner
affirms the changed environment in South Africa, government's socio-economic objectives
and the principles of the Reconstruction and Development Programme. It enables organs of
State to operationalise policies in a targeted, transparent, visible and measurable manner
when engaging in economic activity with the private sector, without compromising
principles such as fairness, competition, cost efficiency and inclusion.
Affirmative Procurement comprises participative programmes
aimed at the engagement of small, medium and micro enterprises owned by previously
disadvantaged persons and the increasing of the volume of work available to the poor and
the income generation of marginalised sectors of society.
Key elements associated with Affirmative Procurement are:
- The recognition that:
- procurement may be used as an instrument of government
policy.
- value for money need not be a measure of monetary cost
alone.
- goods, services and works can be procured both in terms of
human resource and technical specifications.
- participation of targeted individuals, groups of people,
communities and enterprises can be secured by means of a development objective / price
mechanism, a human resource specification or a combination thereof.
- The use of development objective / price mechanism
(points scoring tender adjudication procedure) as a means of:
- measuring a tenderer's human resource and financial offer
(i.e. value for money).
- adjudicating of tenders.
- ensuring that premiums, if any, paid in respect of socio
economic or development objectives are within acceptable limits.
- favouring certain targeted individuals, groups, communities
or practices without excluding those who fall outside of such target groups from
tendering.
- encouraging the private sector to use their skill, knowledge
and creativity in responding to socio economic and development objective challenges in a
cost effective manner.
- The use of human resource specifications in order to:
- define target groups
- set goals (targets), measured in monetary terms, which may
be met by engaging the target groups in the pursuit of predetermined socio-economic /
development objectives.
- provide for the measurement of key indicators to ensure that
goals may be quantified and audited during the performance of the contract.
- set out how goals can be achieved, and the penalties which
are to be applied should a contractor fail to achieve the contractual goal.
- The classification of contracts in order to facilitate
standardisation in approach and the targeting of business enterprises/local
resources
- The use of the third tier of government in order to
effect area bound (specific) targeting relating to marginalised sectors of society in
construction projects.
Affirmative Procurement has two main legs:
- A development component which ensures that the target group
is capable of participation.
- A structured participation component which ensures that the
target group is engaged in the provision of goods, services and works.
Affirmative Procurement, without resorting to set asides
and price preferences can be used in an effective, efficient, transparent and cost
effective manner to:
- put in place a programme of affirmative action to address
the deliberate marginalisation from economic, political and social power of previously
disadvantaged individuals and sectors of society.
- develop small businesses, particularly those owned and
operated by black entrepreneurs.
- provide jobs in a targeted manner on engineering and
construction contracts.
- increase the number of employment opportunities per unit of
expenditure.
- promote acceptable labour practices and standards.
Affirmative Procurement seeks to ensure that public funds
are expended in a such a way that all segments of the South African population benefit
from such expenditure through job creation and commercial activity. It makes the tender
process accessible to the target group without guaranteeing work and links the flow of
money into targeted business enterprises with a commitment flow of responsibility.
It has as its aim, in the long term to :
- promote development objectives with a focus on human
resource development.
- provide opportunities for skill transfer, capacity building
to acquire experience.
- encourage commitment to human resource development and
social responsibility programmes within organisations to specifically, redress historical
imbalances.
- facilitate growth in terms of the efficiency and
effectiveness of delivery as well as numbers and size of business owned and controlled by
previously disadvantaged individuals.
- ensure that emerging enterprises contribute to the tax base,
engage workers who are affiliated to labour associations, adhere to safety regulations and
reflect norms and standards in their business activities associated with those of
developed countries.
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|
|
THE PILLARS OF
PROCUREMENT REFORM
GENERAL
- The strategy of procurement should be to achieve continuing
improvement in value for money, based on whole life cost and quality and to enhance the
competitiveness of suppliers through the development of world class professional
procurement systems and practices.
- Organs of State should seek to embrace efficient and
effective procurement practices and systems and so deliver the services which they are
mandated to do in the required quantities and quality in compliance with Constitutional
provisions.
- Government should focus beyond administrative and service
role provisions in its procurement practices and take on the role of economic catalyst in
the transformation process
- Organs of State when engaging in procurement activities
should adhere to the preservation of the highest standards of integrity, objectivity,
fairness, efficiency and professionalism.
- Success in the economic environment requires government to
play a clear policy co-ordination role which is likely to have a wider application in the
rest of the public sector, and indeed in the private sector.
SOCIO-ECONOMIC REFORM
- Public sector procurement should be structured in a manner
that promotes economic reconciliation and competitiveness.
- The structuring of contracts should be such that small,
medium and micro enterprise participation is maximised without compromising time, cost and
quality.
- Value for money should not be based on least cost alone; it
can include well defined socio-economic criteria which can be evaluated in a transparent
and measurable manner.
- Targets should be set and delivery systems should be
designed to facilitate one or more of the following :
- The development of small, medium and micro enterprises
particularly those owned and operated by previously disadvantaged persons;
- The increasing of the volume of work available to the poor
and the income generation of marginalised sectors of society;
- Affirmative action to address the deliberate marginalisation
from economic, political and social power of black people, women and rural communities and
to empower communities and individuals from previously disadvantaged sectors of society;
subject to such targets being readily definable,
quantifiable, measurable, auditable and verifiable.
- The policy of targeting must not compromise the principles
of fairness, competition, cost-efficiency and inclusion, and should be subject to periodic
review.
- The procurement process should be made accessible to the
target groups, and structured in a simplified and user-friendly manner.
- The third tier of government should identify area bound
targets and select associated delivery mechanisms.
- Organs of State should take cognisance of regional and local
dynamics when implementing procurement policy and associated practices
- International competition should not prejudice local
enterprises and should be used as an opportunity to develop and advance local industry
through technology transfer and human resource development.
THE PILLARS OF PROCUREMENT REFORM
INSTITUTIONAL REFORM
- Procurement must comply with the provisions of the
constitution, support macro economic policies, be an instrument of the transformation
process and promote tax morality and improve labour standards.
- National legislation should prescribe a procurement
framework which regulates procurement procedures, practices, documentation, policies,
preferences and control measures in all organs of State.
- Procurement control and monitoring should be exercised by a
national Procurement Compliance Office whose functions should be to ensure that
procurement agencies comply with the national procurement legislation and framework and
associated regulations.
- The Procurement Compliance Office should have five
specialist arms which have functional responsibilities in respect of registration,
administration, socio-economic affairs, technical matters and education and training
respectively.
- Existing national and provincial Tender Board Acts and Local
Government Ordinances pertaining to procurement, should be repealed; the existing State
and Provincial Tender Boards should be disbanded.
- Offices of Tender Boards (as opposed to the Boards
themselves) should be reconstituted as Procurement Offices responsible for central
tendering and certain ad hoc contracts.
- Consumer organs of State should be authorised to act as
Procurement Centres in order to procure goods, services and works, based on predetermined
criteria.
- A code of conduct should be drafted to govern the actions of
procurement officials and those engaged in providing goods, services and works.
- The Procurement Compliance Office should regulate and
prescribe all documentation in order to achieve a uniform procurement system with standard
tendering procedures and contract documentation.
- All enterprises which contract with organs of State should
be registered and all targeted enterprises certified.
- Standards and specifications should result in appropriate
quality being procured to satisfy user needs and should not be used to exclude emerging
enterprises from participation.
- Parastatals should not unfairly compete with the private
sector and should comply with the provisions of a National Procurement Framework.
- A comprehensive training and skills development programme
should be embarked upon to ensure that procurement officials have the necessary
procurement skills.
- Measures should be taken to ensure that the effects of the
WTO's Code on Government Procurement do not impact negatively on the overall objectives of
South African socio-economic reform.
- In the interim, a preference system for local content, or an
offset policy with a bias towards export promotion, should be used to support the local
economy in the face of foreign competition.
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INVITATION TO COMMENT
The Ministries of Finance and Public Works welcome any
comment, criticism or concern on the proposals made for the reform of the public
procurement process from all interested parties. Please address your correspondence to:
The Secretariat : Procurement Reform
Private Bag X49
PRETORIA
0001
Fax. (012) 323 4669
e-mail. procure@gov.za
Comments should reach the Secretariat on
or before 30 June 1997.
Machiavelli (1514):
"It should be borne in mind there is nothing more
difficult to arrange, more doubtful of success and more dangerous to carry through than
initiating changes in a state's constitution.
The innovator makes enemies of those who prospered under
the old order and only lukewarm support is forthcoming from those who would prosper under
the new."
A lack of response from those who are earmarked to benefit
from Procurement Reform would indicate that the same is true in this case.
|
ACKNOWLEDGEMENTS
The Ministry of Finance and the Ministry of Public Works
would like to acknowledge the contribution of the following in the procurement reform
process culminating in development of this Green Paper:
Co-chairpersons of the Procurement Forum:
- Sivi Gounden - Deputy director General, Public Works
Department
- Jan Breytenbach - Chief Director, Office of the State Tender
Board
Task Team:
- Deen Letchmiah - Consultant
- Ron Watermeyer - Consultant
- Josh Nkosi - Consultant
- Officials for the Departments of State Expenditure; Trade
and Industry; and Arts, Science, Culture and Technologies.
Other organisations:
- Various central and provincial departments
- Various short term local consultants
- Labour representatives, business sector, professional
organisations and institutions, international experts and the like.
4. Specific Aspects of Procurement Reform
Contents
4.1 Introduction
Public Sector procurement is an instrument of Government
policy. The setting of new policies to serve socio-economic objectives, the changed
environment, and good governance require a review of the detail of the procurement system.
If this is not done, new policies will not be able to produce the desired results. At the
same time, government needs to be able to govern in an efficient and effective manner.
Procurement should facilitate and not frustrate organs of State in their functioning and
the discharge of their obligations.
The validity of current public procurement practices needs
to be examined, and certain practices need to be revised, some housekeeping is necessary
and issues which have never been satisfactorily resolved, need to be addressed.
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Procurement activities may for practical reasons be
considered as falling into one of the three following categories:
| goods: |
being the supply of raw materials or
commodities made available for general sale. |
services: |
being the provision of labour and/or knowledge
based expertise. |
engineering &
construction works: |
being the provision of a combination of goods
and services, including building and engineering infrastructure, arranged for the
development and provision of an asset or refurbishment of an existing asset. |
The principles of procurement are, generally, applicable to
all three types of activity; the details, however, may change. The discussion and
proposals presented below, examines, as far as possible, issues in a non category specific
manner.
Engineering and Construction Works procurement is,
normally, more complex than that for Goods and Services as this type of contract requires
elements of both Goods and Services to be combined and arranged for the performance of the
contract. Construction contracts require assets to be constructed in a specific location,
and have requirements which are very industry specific. For these reasons, and because the
construction industry's role in public sector procurement is significant, some of the
issues which need to be addressed in construction projects specifically are also raised.
4.2 Value for money
i. Discussion
Value for money, in the context of human resource
development, is discussed in Chapter 3. The technical component of value for money also
needs to be re-examined.
Organs of State will need to embrace disciplines such as
value engineering (i.e. the structured and continuous approach to developing a common
understanding of a project's aims and requirements together with all aspects of function,
design, construction and operation) to enable the best functional balance between cost,
reliability and performance, and, hence, value for money to be achieved.
Procurement procedures should encourage tenderers to offer
alternative designs, techniques or proposals that offer better value for money. Proposals
which enhance the intrinsic quality without affecting monetary savings should, also, be
considered.
ii. Proposals
- Organs of State should, where appropriate, embrace the
discipline of value engineering.
- Tenderers who submit alternative tenders based on
performance specifications, should not necessarily be required to submit, in addition,
tenders without qualification or modification.
4.3 International competition (Foreign
Tenders)
i. Discussion
Most of South Africa's industries are not yet in position
to compete on a par with their international counter-parts. There are a number of reasons
for this state of affairs, particularly the fact that South African industries have not
gone through the full development cycle experienced by other developed economies.
Accordingly, many South African industries would find it very difficult to compete both
locally and abroad if all forms of preference and support for locally manufactured
products were to be abolished.
Whilst State regulatory policy should aim to achieve its
goals in an international context, it must also to take into consideration the support and
development of local industry, and the creation of job opportunities. The policy must
respond to key issues of national priority such as the upliftment of previously
disadvantaged sections of the community, whilst also reflecting on issues pertinent to
international trading, and how these issues will be managed. Industry must become
competitive both on the local and international markets.
Local industry can be protected in a number of ways
including:
- The imposition of restrictive tariffs on all goods of
foreign origin.
- The institution of non-tariff based controls on importation
(i.e. Import Control).
- The provision of preferences for local supply based on local
content.
- The application of affirmative (targeted) procurement
practices.
Price-based preferences invariably raise the issue of value
for money, particularly where the price differences between imported and locally produced
goods are significant. Such preferences are, furthermore, often in conflict with
international trade agreements.
Contract strategies and the packaging of contracts can also
be used to tip the scales in favour of the local industry. The size of contract, early
warnings to prospective local suppliers of forthcoming tenders, and technical assistance
programmes can all play a part in ensuring, that local tenderers have a fair chance of
winning contracts.
Targeted procurement practices can be effectively used,
particularly on construction projects, to ensure that there is significant local content.
The objective can be achieved without resorting to the conventional restrictive trade
practices as all tenderers, including foreign tenderers will be required to deliver in
terms of technical and human resource specifications.
Both technology transfer and human resource development are
crucial to the advancement and development of local industry. South Africa's policies
ought to ensure that the country enjoys the maximum benefit of foreign participation by
incorporating a requirement for technology transfer and human resource development as
integral conditions for foreign tenders.
A single, broad and comprehensive policy may be easier to
manage than numerous narrowly defined policies. An offset policy is an ideal instrument
through which all requirements can be achieved. Technology transfer and human resource
development can be used as credits for the required offset value under an offset contract.
Alternatively, it could be a requirement that foreign tenderers meet their offset
requirements through purchases or services sourced from small, medium and micro
enterprises.
To develop and formulate an offset policy, data would need
to be gathered and analyzed. Accordingly, this is a medium to long term approach.
Since South Africa has joined the international trading
community by signing the World Trade Organisation agreement, it is desirable to develop
harmonised and transparent procurement procedures, acceptable to local and foreign
tenderers, which make provision for value for money and competitiveness, with special
emphasis on meeting the principles of the Reconstruction and Development Programme and the
socio-economic objectives of government. It is, however, important that South African
industries move rapidly to a position where they can compete on par with other world
economies. An export orientated policy which is consistent with international trading
norms might be the key to developing local industries to the required level of
competitiveness.
ii. Proposals
- The current preference system for local content should be
continued and be extended to professional service contracts.
- Specific attention should be paid to the selection of
contract strategies, the packaging of contracts and the setting of human resource goals in
order to maximise local content.
- The continuation of the preference system should not rule
out the adoption of broader policies in the future which may be easier to manage and which
can yield increased benefits. One of these policies could be an offset policy. An offset
policy can be comprehensive, covering many issues, yet be easy to manage, since the
responsibility for satisfying the offset agreement requirements rests with the seller
(foreign tenderer). An offset policy has an inherent bias towards export promotion, which
is an indirect, but more effective way of supporting local industry.
- In order to simplify tender documentation, streamline
administrative procedures and focus protective measures, preference systems should be
linked to the categorisation of contracts and applied only to specific sub-categories of
contracts.
- Foreign labour should be utilised only in circumstances
where the requirements cannot be met by using local labour. Government procurement policy
should ensure that this policy is respected by the those tenderers who respond to
government tenders.
- The appointment of international specialists should be
conditional upon the transfer of skills to their South African successors.
- Foreign tender participation should be based on, inter
alia, value for money and on the promotion of international competitiveness.
- Foreign tenderers should be used for the development and
benefit of local industry. Both technology transfer and human resource development should
be linked to such tenders in order to ensure that South Africa enjoys the maximum benefit
from foreign tenders.
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4.4 Impact of the World Trade
Organisation Agreements (WTO - formerly GATT)
i. Discussion
The World Trade Organisation (WTO - formerly GATT) is the
body that regulates international trade. It fulfills three main functions, viz:
- it is the preeminent forum for negotiating multilateral
trade agreements which, in effect, regulate national trade-related economic policies;
- it contains established legal instruments governing
international trade; and
- it possesses Dispute Settlement Procedures to resolve
trade friction between Members.
South Africa, a Founder Member of GATT, is classified in
the WTO as a developed country and there is some debate as to whether South Africa
should seek to be reclassified as a developing country. Although South Africa has
never formally sought reclassification, it negotiated favourable conditions and extended
implementation periods in several of its sensitive economic sectors during the Uruguay
Round of the GATT. Thus, while WTO rules regulate international trade practises and
procedures, there is significant scope to negotiate specific terms and conditions that
cater for national interest and priorities.
Unlike most of the WTO agreements to which South Africa is
committed as part of the WTO's single undertaking principle, the Agreement on Government
Procurement is plurilateral and extends obligations only to Members that are signatory to
its provisions. South Africa has, to date, not signed the Agreement and there are
expectations that the Government will come under increasing pressure from its main trade
partners to do so.
In responding to the pressure, South Africa should adopt a
balanced approach that recognises not only potential costs, but also the potential
benefits that accession to the Agreement on Government Procurement may provide. It is
critically important to recognise that the issue of government procurement will remain on
the multilateral negotiating agenda and the challenge is to engage the issue in a way that
promotes South Africa's national interests. Moreover, Government needs to take cognisance
that once it has defined its interests in this area, it is possible to negotiate the terms
of accession to the Agreement in a manner that is not inconsistent with national
priorities.
The Agreement on Government Procurement recognises that
'entities', which encompass governments and agencies controlled by them, are significant
buyers of goods and services. Given the growing significance of this market (several
billion dollars), a potential benefit of accession to the Agreement is that it will permit
South African firms to tender for valuable government contracts issued by other Member
countries. The purchases of governments and their agencies around the world cover a range
of goods and services that may be of interest to South African firms.
Counter arguments suggest that accession to the Agreement
will preclude the Government from applying preferences in awarding contracts on the basis
of national development priorities; to promote local business (including SMMEs) and to
encourage black economic empowerment. The argument is that foreign firms will be
successful in tendering for South African Government procurement contracts and may
supplant smaller, less competitive South African suppliers.
In addition, the potential (negative) effects of the
Agreement may be to:
- weaken the country's balance of payments situation;
- lessen the utilisation of installed production capacity;
- downscale the creation and maintenance of job opportunities;
- weaken the socio-economic principles of the
RDP;
- lessen the ability to maintain an Offset policy; and
- make the government procurement system inaccessible to
disadvantaged persons.
These effects need to be thoroughly researched before any
definite conclusions can be drawn. In any event, the constraints imposed on Members by the
Agreement are not absolute as there is considerable scope for the negotiation of
exemptions and exclusions; Governments may list (or specify) which entities will be
covered by the Agreement; entities are entitled to maintain their own specific lists of
permanent suppliers. There is also provision for selective tendering.
The Agreement specifies that it only applies to procurement
contracts valued at SDR 150 000 or more. Governments can therefore establish their own
independent criteria in awarding contracts valued at less than this amount. It would,
accordingly, be valuable to explore whether this threshold can be negotiated upward or
not. If South Africa were to secure developing country status in acceding to the
Agreement, it would qualify for Special and Differential Treatment which permits measures
to, amongst other things:
- safeguard the balance of payments;
- promote SMMEs (infant industries); and
- revitalise rural and underdeveloped (sub-national) regions.
In addition, Members that participate in regional
arrangements (SADC) are able to negotiate exclusions on the basis of, for example,
promoting regional industrial development. In short, the Agreement contains degrees of
flexibility that need to be examined.
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ii. Proposals
- South Africa should not adopt an intransigent or dogmatic
approach to the issue of public sector procurement. While it may be opportune to resist
accession to the Agreement at this time, it is important that South Africa begins to
engage the issue directly and to define its interest empirically.
- It is also important to recognise that the issue will not
disappear from the multilateral trade agenda. In this regard it should be noted that at
the WTO Ministerial Meeting, held in Singapore in December 1996, Ministers agreed to
establish a Working Group to conduct a study on transparency in government procurement
practises, taking into account national policies and to develop elements for inclusion in
an appropriate agreement. As the principle of transparency and due process are enshrined
in the Constitution, the WTO process should pose no threat to South Africa.
- A broad, long term strategy will need to be formulated. In
formulating this strategy, more research is required to analyse and calculate:
- the potential for foreign firms tendering for government
contracts;
- the potential benefits that may flow from successful
tendering by South African firms in foreign countries.
- In addition, a detailed analysis of the Agreement on
Government Procurement and how it has been implemented in other countries should be
undertaken. The aim would be to explore the scope of flexibility contained in the
Agreement and the full range of options that may be available to Governments. It is also
vital to recognise the advantages that flow from developing country status. If South
Africa's trading partners are keen to secure this country's accession, it may provide the
leverage to accede on a developing country basis (either formally or informally). This
option needs to be explored. South Africa may also accede to the Agreement gradually. It
could open up to foreign competition on a case-by-case basis weighin up the overall
(socio-economic / efficiency) costs and benefits.
4.5 Appointment of consultants
i. Discussion
Consultant appointments can be broadly classified in terms
of certain characteristics which may affect the extent to which specific selection
criteria and specifically price, may appropriately be used in the selection process. The
two extreme poles of the spectrum of consulting assignments can be defined as follows:
- Routine assignments i.e. tasks of a straightforward
nature involving, in the main, standard technologies in terms of which inputs are
relatively well known and can be readily defined.
- Conceptual, complex and multi-disciplinary assignments
i.e. those assignments that call for considerable innovation, creativity and skills,
frequently outside a single discipline. Examples include policy development, project
management, technically complex assignments, restructuring, expert advice, strategic
planning, and research and development. Such assignments are broadly characterised by both
unknown and ill-defined inputs and outputs, with the appointment's impact on the end
product very uncertain.
In routine assignments, price can play a significant role
in the selection process, whereas in conceptual, complex and multi-disciplinary
assignments, the use of price as a selection criteria should be less significant.
The calling for open tenders under all circumstances, even
for routine assignments, is neither in an organ of State's nor the consultant's interests.
Apart from an organ of State's costs in preparing and adjudicating such tenders and the
consultant's costs in submitting tenders, such practices will favour the established large
consultancies who have greater capacity to absorb the costs. Medium and small companies
and, in particular, emerging consultants, are at a distinct disadvantage. Elaborate and
complex adjudication systems are required for the satisfactory adjudication of tenders for
consulting services.
A major problem with competitive tendering relates to the
definition of the scope of services to be performed. Consultants cannot price their
services if these are ill defined. In research and development, policy formulation, human
resource development, community-based developments and the like, the scope of services can
seldom be well defined prior to the commencement of the project or commission.
For engineering and construction projects, life cycle costs
are most critical and are largely dependent on design quality. Any potential saving in the
design fee would form only a minuscule portion of the life cost of the project and should
not be allowed to jeopardise the best value for money option on the project as a whole.
Likewise, the costs of policy research are trivial relative to the impacts of policy
decisions on the nation. The selection of consultants on the basis of price alone may well
lead to unsatisfactory, or even disastrous outcomes which could, in all likelihood, have
been avoided at insignificantly greater overall cost.
International experience regarding competitive tendering
for professional services has been mixed. In the United States of America, legislation was
introduced as far back as 1972 to outlaw competitive tendering for professional services
on construction projects. Contracts are awarded in terms of an Act which requires
government to negotiate contracts on the basis of demonstrated competence and
qualification for the type of services required, at fair and reasonable prices; the
principle being that contracts are awarded to the most qualified firm and not the least
costly. In the United Kingdom, surveys have indicated that where competitive fees (lowest
price) was the criteria for award, clients on engineering and construction contracts got
less value for money, as consultants were reluctant to consider alternatives, produced
simpler designs, resisted client changes, spent less resources on education and training
etc. Current thinking is to opt for the awarding of contracts on the basis of a quality /
price mechanism, in terms of which price, depending upon the nature of the services
required, accounts for from 15% to 50% of the points allocated.
The World Bank has no requirement for competitive tendering
for consulting services and recommends that selection be based primarily on quality. Price
forms part of the selection process only where projects are of a routine nature, and
proposals are judged to lead to comparable outputs.
The principle factors which the World Bank suggests that
should be used when deciding upon appointments are:
- The adequacy of the work plan submitted by the consultant in
response to a brief (scope of work).
- The consultant's general experience in the field of
assignment.
- The qualifications and competence of the personnel proposed
for the assignment.
- The relationship the consultant has with the client.
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The specific needs of emerging consultants owned and
controlled by previously disadvantaged individuals must be taken into account. Although
this group of consultants may demonstrate competency, they are likely to lack experience
which can only be obtained through the granting of appointments.
Current practices which are being pursued to facilitate the
participation of emerging consultants and to reward consultants who have been proactive in
developing previously disadvantaged individuals within their companies or developing
capacity in emerging consultancies, include insisting that all work be performed in
association with such enterprises, accelerated roster systems, joint venture requirements,
and the scoring of adjudication points. Information provided by established firms in
support of human resource development and social responsibility programmes is extremely
difficult to verify and is seldom called for. Furthermore, such criteria frequently favour
the large firms who, for various reasons relating to scale of operation, have more scope
and opportunity to meet such criteria, particularly as their contributions are seldom
measured in terms of their turnovers. Thus, although such systems may achieve their
objectives in providing work for emerging consultants and rewarding pro-active established
consultants, it is vulnerable to window-dressing and fronting and generally favours the
larger consultancies.
Many organs of State have established panels of consultants
who have the necessary experience and expertise to provide routine services e.g. auditing,
design, contract administration, legal advice, etc. Certain appointments made to firms on
these panels have resulted in strong relationships which have endured for long periods and
a number of these panels have not incorporated any new panelists from the time that they
were originally constituted.
Insofar as auditing appointments are concerned, calls have
been made for the rotation of audits so as to prevent relationships between the auditor
and auditee becoming "too comfortable" as this may result in a loss of
independence. The office of the Auditor General in New Zealand applies the practice of
compulsory rotation of audit firms every three years. The practice of rotation on a five
year cycle is also enforced in Switzerland, both in the private and public sectors.
Organs of State, other than those functioning at national
level, often require consultants to maintain local offices within their areas of
jurisdiction. In many instances such offices do not, in fact, perform the work using their
own resources. Instead they pass it through to associated offices in other centres. This
practice is very difficult to monitor and the consequence is that appointments to
consultants with local offices do not necessarily lead to local economic development.
Given the efficiency and speed of current modes of
information transfer, the desirability of consultants being required to maintain local
offices, which may be mere facades, is questionable. It may, in fact, be submitted that
the requirement for maintaining a local office is a form of local preference, which works
against free trade within the country and is, therefore, in conflict with the
constitution.
Under certain circumstances, particularly where work of a
highly specialised nature is required, it may be advantageous to approach a particular
firm, or individual consultant, rather than to conduct a selection process. Such
appointments would, normally, be desirable where the particular consultant has been
closely involved in work similar to that required, or has expertise not widely available.
Appointments of this nature are unavoidably open to abuse and criteria and policy in
respect of sole service providers needs to be formulated.
There is a need in regard to construction projects to have
available standard sets of interlocking professional appointment documents which not only
govern the conditions of the appointment but also set out, as far as possible, the
services to be performed by consultants and the relationships which such consultants have
with construction contractors and other consultants. This is particularly necessary to
enable "non-traditional" consultants e.g. training managers, mentors, project
facilitators, contract compliance monitors, etc. to be appointed to ensure that
development objectives are met and to describe the services required of consultants where
non-traditional contract delivery options or new forms of contracts are utilised on
projects.
Proposals
- Any system for engaging consultants should not be elaborate
to the extent that it is unwieldy to administer and cause delays in making appointments;
neither should it sacrifice time and cost for quality. It should furthermore take
cognisance of:
- the erratic stop / start nature of projects
- imbalances in supply
- budgeting constraints
- lack of exposure and experience
- increased administrative work loads
- window dressing and fronting
- cost of tendering both in terms of direct client costs and
consultant costs
- scale of project
- lack of detailed information on a project
- Officials of organs of State should prepare terms of
reference (scope of work) in as clear, unambiguous and precise a manner as the nature of
the project will permit.
- The following basic criteria should form the point of
departure for the appointment of consultants :
- competence
- fairness of work allocation
- price insofar as it does not affect quality.
- capacity to deliver
- Appointments should be made on the most appropriate of the
following methods:
- tariff appointments
(fixed scales of fees or
prescribed rates ) :
- invite two or three firms of similar sizes or capabilities
drawn from a data base, using a method that over a period of time will afford all those on
the list an opportunity of participation, to submit proposals and make the appointment on
the basis of the quality offered;
- make appointments from a rotating roster in respect of
routine assignments; or
- make appointments from a panel of consultants with the aim
of ensuring that those on the panel have equitable / balanced work loads commensurate with
their abilities and capabilities.
- competitive tendering :
- invite tenders from a short list of consultants who have
similar capabilities, capacity and experience, appropriate for the required service which
is to be performed, selected from a comprehensive data base in such a manner that over a
period of time all those on the data base will have an opportunity to tender; or
- invite any interested firm to tender on the basis of a
quality / price mechanism and reject any tenderer who does not meet a minimum quality
threshold.
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- The competitive tendering route should only be followed if
the terms of reference / scope of the work can be adequately defined.
- The basis upon which firms are selected and invited to
submit proposals / tenders should be documented and submitted for review to the
Procurement Compliance Office.
- Quality should be measured in terms such as competency,
available project specific expertise, stated approach, methodology and qualifications of
key personnel.
- The criteria for admittance to panels / data bases should be
made public and firms complying with such requirements should be permitted to make
application to join such panels on an ongoing basis.
- Selection on the basis of quality, should not necessarily
mean the best quality available, but quality appropriate for the assignment.
- Quality selection criteria should be clearly stated in
enquiry documents.
- The scoring of quality should be clearly stated in
adjudication documents and should be such that, should parties who were not part of the
original adjudication team score submissions, a similar result would be obtained.
- Auditing appointments should be rotated.
- Firms of consultants owned and controlled by previously
disadvantaged individuals whose turnovers are within predetermined limits, should be
afforded accelerated work opportunities. Accelerated work opportunities for such firms
should be achieved by means of one or more of the following:
- by rotating the target group consultants at a faster rate in
roster systems.
- by setting participation goals on large scale appointments
in terms of human resource specifications to ensure that the target group consultants are
engaged either as sub-consultants for distinct portions of the work or as joint venture
partners.
- Ongoing, non project specific appointments should be made
for a specific period of time.
- Procedures should be put in place in research and policy
development appointments to control the end product.
- Standard appointment documents and standardised
documentation relating to the services which are to be performed should be prepared in
respect of routine assignments.
- Contracts with consultants should specify the type and terms
of professional liability insurance cover, commensurate with the nature of the assignment,
which is to be maintained by the consultants.
- The appointment of sole service providers should be
permitted, subject to adequate justification on the grounds of the scarcity of their
skills and experience, value for money being obtained, and the likelihood that the outcome
of the assignment would be compromised without such a selection.
- The practice of affording preference, or confining
appointments to consultants maintaining offices within a specific geographic area should,
in general, be discontinued. Only where it can be demonstrated that clear advantages would
accrue to the organs of State by the use of local consultants should the selection be
confined to them.
- Procurement Offices and Centres should report on a regular
basis to the Procurement Compliance Office regarding all appointments of consultants.
Particulars of the scope and nature of assignments, the terms of appointment and
remuneration, the estimated fee amounts and the departments, or sections requesting the
appointments should be furnished.
4.6 Language
i. Discussion
Currently, national standards are written in technical
language. As standards have become, more internationalised, the technical languages of
international standards, viz. English, French and Russian, tend to dominate world wide. Of
these, only English is of importance to South Africa. In the past all national standards
were translated into Afrikaans. In the case of compulsory standards, this is still the
case, as prescribed to the South African Bureau of Standards by the Department of Justice.
Insofar as general conditions of contract are concerned,
documents are currently available in both English and Afrikaans. Difficulties have been
experienced in the past when tenderers competing for a specific contract have been given
the option of drawing documents in either of the two languages, as errors have inevitably
crept into the documentation. These errors have, in some instances, resulted in
inequitable tenders being received.
The problems relating to the provision of documentation in
any of the official languages other than English and Afrikaans should not be
underestimated as the necessary technical language does not exist and would have to be
developed. As contract documents must convey technical information and requirements in an
unambiguous manner, the preparation of documentation in a number of languages would be
very difficult and fraught with dangers.
ii. Proposals
- All contract documentation should be prepared in English,
the international language of business.
- Guidance notes / summaries of principal features of
contracts should be prepared in official languages other than English, where appropriate,
and be issued without prejudice to tenderers.
- Provision should be made to assist tenderers with regard to
technical translations.
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4.7 Parastatals as suppliers
i. Discussion
Parastatals are those institutions which are directly or
indirectly controlled by the State. Parastatals are often perceived to have an unfair
advantage in competing for contracts with the private sector on various grounds, for
example, they price on the basis of operating costs alone, they have tax concessions, they
are not obliged to earn an adequate return on their investment and they undercut the
prices of competitors despite making losses.
Where parastatals are permitted to compete with the private
sector, it is necessary to develop criteria that allows the private sector to compete with
parastatals in an equitable manner.
ii. Proposals
As a general rule, parastatals should be discouraged from
tendering in competition with the private sector. Where parastatals tender in competition
with the private sector, a percentage loading should be applied to parastatal tenders in
much the same way as a percentage loading is applied to "protect" local
suppliers against foreign suppliers.
4.8 Registration of suppliers, service
providers and contractors
i. Discussion
There is a balance between fiscal discipline and nation
building. In the context of developing emerging suppliers, service providers and
contractors and integrating them into the mainstream of the economy, there needs to be a
balance between cost effective creation of physical assets / supply of goods, services and
works and the development of emerging business. Supplier / service provider / contractor
registration is viewed by many as a means of reducing the State's risk exposure in
engaging firms who have unproven capabilities or inadequate prior contractual experience.
Registration of contractors / service vendors is
encountered in many countries. In some developed countries, contractor registration is
used as a means of procuring goods, services and works by means of a qualification system.
This system requires firms to qualify to be included on an approved list of tenderers.
Public client bodies are able to access the list, draw up a schedule of firms which are
suitable for a project (prequalify), and seek tenders from firms of equivalent size,
capability and experience.
ii. Proposals
Registration in South Africa should be instituted as a
means of:
- compiling a data base for the packaging of contracts and
identifying target groups.
- regulating participation in public sector procurement.
- promoting good business practices and adhering to statutory
regulations and requirements.
- censuring those who transgress codes of conduct, fail to
meet their tax, levy or service charge obligations, or obtain work in a fraudulent manner.
Non-registered suppliers, service providers and contractors
should not be permitted to participate in public sector procurement activities.
Registration should be subject to the observance of a code of conduct which should, inter
alia, require that signatories undertake to:
- tender only on projects which they are capable of executing
with the resources they are able to marshall in accordance with the terms and conditions
of the contract;
- remunerate staff in accordance with relevant labour
legislation;
- pay UIF, Workman's compensation, service charges, VAT,
income tax and other taxes as appropriate.
- adhere to safety and health regulations in so far as their
workers are concerned.
- engage subcontractors under fair conditions of contract and
require them to adhere to labour standards.
- not engage in Dutch auctioning in the engagement of
subcontractors (i.e. the practice of hawking prices around in order to drive prices own).
- adhere to environmental standards.
4.9 Life cycle costing
i. Discussion
The prime objective of public sector procurement is to
achieve best value for money. Best value for money in the context of a technical component
in procurement is the optimum combination of whole life cost and quality to meet a user
department's requirements and not the lowest short term cost. Whole life cost takes into
account all aspects of cost over the lifetime of the asset, including capital,
maintenance, management and operating costs.
For complex procurements, whole life costs may be very
different from and only loosely related to initial price. In the case of capital assets,
the greater part of the whole life cost is normally incurred after purchase, the purchase
price frequently being as little as 20% of the total cost.
Goods which are not wholly consumed in the course of their
use will have to be disposed of. When some assets are no longer needed, they may have a
resale value. Accordingly, many factors need to be taken into account in an integrated
procurement process.
In engineering and construction projects, life cycle costs
are most important and are very dependent on design quality. Design quality is about
providing, within the available resources, added value over and above the merely adequate.
The procurement system needs to be structured so that quality designs and not lowest cost
design is procured, as the work of the designer has a significant impact on life cycle
costing.
ii. Proposals
- Emphasis should be placed on economy over time, not on short
term savings.
- Appropriate quality should be determined on the basis of
whole life costs as opposed to initial cost or lowest price.
- Comparative tenders should be evaluated in terms of
standards methods and procedures.
- High quality as opposed to least cost lower quality designs
should be procured in engineering and construction projects where life cycle costs
overshadow initial costs.
4.10 Quality
i. Discussion
ISO 8402 defines quality as the total characteristics of
an entity that bear on its ability to meet stated and implied needs. Quality may be
regarded as conformance to stated requirements (specification) rather than fitness for
purpose. It is achieved by executing a contract to the stated requirements. Quality can be
managed and given visibility by means of one or more of the following:
- Quality assurance e.g. SABS ISO 9000 and other such
certification schemes.
- Total Quality Management
- Development of personnel
- Bench marking
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The South African Bureau of Standards has a product
certification scheme called the Mark Scheme. If a manufacturer is prepared to manufacture
commodities in accordance with the requirements of a mark specification and to apply the
required quality control measures to his factory, he may apply to the SABS to use the
applicable certification mark on his commodity. Of the some 3500 SABS specifications,
about 700 have been declared mark specifications. There are currently, approximately 3000
permit holders.
SABS ISO 9000 has strong support in some areas and forms
the basis for most certification schemes. It has, however, been strongly criticised for
being over-bureaucratic, expensive, vulnerable to variable interpretation, inappropriate
for small firms and existing as a goal rather than a means to an end. Nevertheless, it is
an appropriate basis for effective management of quality notwithstanding its reliance on
paperwork. Currently, approximately 1500 firms have been certified.
Small firms have experienced some difficulties with the
SABS ISO 9000 scheme. They have argued for a simplification of the standard and have
complained about the cost of certification. There is no doubt that the cost of
certification as a proportion of turnover for a small firm is significantly greater than
for a large firm.
In engineering and construction works contracts, many of
the problems with quality originate from poor design. A poor design may give rise to
additional costs both in the construction process and on future maintenance. To ensure
that suitable quality standards are maintained over time, particular care must be taken in
the manner in which design commissions are awarded. Incentives may need to be provided so
as to achieve high value designs.
Small and emerging manufacturers have particular problems
in achieving quality, depending, however, upon how quality is measured and defined.
Current practice is to define quality in terms of certain accepted criteria and to measure
such acceptance in terms of prescribed test methods and procedures. These are usually set
out in SABS specifications or test methods which have, to a large extent, been formulated
or drafted with the approval of industry and industry-related research and development
organisations.
It may be argued that these standards have been drafted to
suit the formal industry, and are framed around plant-based methods of manufacture and
medium to large scale enterprises which have a reasonable degree of technical competency
and testing resources. In addition, the test methods and procedures for quality assurance
are generally written for a scale of operation where sufficient quantities for statistical
purposes are manufactured, and the cost of testing by external authorities (or that
associated with the establishment of in-house laboratories) can be written off against the
volume of the article which is manufactured.
Failure by a small scale manufacturer to comply with one of
the requirements of these specifications, albeit a relatively minor lack of compliance,
means that compliance with a SABS specification cannot be claimed. Thus, in effect, many
of the current specifications present a barrier to entry to small scale entrepreneurs and
exclude their participation in particular markets.
ii. Proposals
Quality should be procured on a contract specific basis by
means of one or more of the following strategies:
- The full and proper specification of requirements.
- Improving, reviewing and updating procurement documentation
on a regular basis.
- Taking cognisance of whole life costing in the adjudication
of tenders.
- Utilising techniques such as value engineering when deciding
upon procurement strategies.
- Prequalifying tenderers where exceptional quality is
required.
- According preferences to tenderers who offer products which
have the SABS mark or Agrément certification or are manufactured in accordance with
quality assurance specifications such as SABS ISO 9000 providing that such measures do not
exclude products which may otherwise be acceptable.
- Requiring tenderers to submit their plans for maintaining
and improving quality together with their tenders, or to operate in accordance with Total
Quality Management Principles, should such measures be deemed necessary to achieve the
desired outcome.
- Awarding contracts in terms of a quality / price mechanism
which evaluates both the price and quality of the offer.
- Accepting tenders only from those firms whose names appear
on a quality register.
- Requiring consignment inspection.
The criterion in applying such strategies should be that:
- The measures are justifiable.
- The measures will lead to a quantifiable improvement or
level in quality.
- The resultant quality is appropriate to satisfy end user
requirements as opposed to the best quality available.
- The measures should not promote captive markets.
Prequalification should not be utilised to limit
competition or to reserve work for specific groupings. It should only be used to achieve
an appropriate level of quality.
Organs of State should consider alternative forms of
testing to confirm compliance and relax standards, where appropriate, to facilitate the
participation of emerging or local enterprises.
Strategies to overcome difficulties relating to small scale
manufacture should include:
- monitoring of the performance of manufacturers by the State
in terms of sampling plans.
- the establishment of centralised testing
centres.
- formulation of specifications which describe product
properties in terms of their physical properties rather than by reference to a series of
standards.
- the development and specification of simple site (point of
manufacture) tests which confirm the acceptability of products for their intended purpose.
- a review of testing and acceptance tests, criteria and
norms.
- the setting of appropriate standards for different
applications of a manufactured article.
- education and training of manufacturers.
4.11 Measures to combat corruption
i. Discussion
In the context of public procurement, corruption usually
comprises fraudulent behaviour by persons concerned with the procurement process leading
to losses for an organ of State. Usually, there is some form of collusion between the
buying and the selling side: responsible officials on the public procurement side request
or are induced to accept favours from tenderers or contractors. Such practices are often,
but not always, criminal; they are always immoral and improper in terms of good
procurement practice. Fraudulent actions are sometimes confined to one side of the
procurement transaction, such as when tenderers collude to "rig" tenders or when
officials misappropriate public property, or assets.
Corrupt actions within organs of State may include:
- preparing slanted specifications
- approving inappropriate tenders
- tampering with tenders
- breaching confidentiality
- taking bribes
- lax contract administration
- use of position to obtain a private benefit.
Corrupt actions by suppliers / service providers /
contractors may include:
- collusion
- influencing the choice of procurement method and technical
standards
- inciting breaks of confidentiality
- influencing the work of evaluators
- offering of bribes
- over or under invoicing
- "fast pay" action
- inaccurate disclosures
Competition and transparency serve to combat corruption to
some extent. Other measures, however, need to be instituted to minimise corruption.
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ii. Proposals
The following preventative measures should be adopted:
- The establishment of codes of conduct for suppliers /
service providers / contractors and procurement officials.
- The publicising of anti-corruption programmes by means of
staff training and meetings.
- The institution of routine check points at the pre-award
stage, or in the post-award stage, on the measurement of performance by contractors or on
contract amendments.
- The performance of internal audits on specific items.
- The implementation of a "whistle-blower" system
which allows and even encourages officials to inform on each other regarding instances of
fraud or misconduct.
- The encouragement of strict observance of procurement
regulations, particularly those relating to the documentation of the processes.
- The provision in tender documents for the disqualification
of tenderers who attempt to influence the award of tenders.
- The deregistration / de-barring of offending suppliers /
service providers / contractors from participation in public sector procurement for a
period of time.
- The provision of opportunities for suppliers / service
providers / contractors to raise objections concerning the status / practices of their
competitors.
4.12 Early payment cycles
i. Discussion
Access to finance is one of the most urgently felt needs
among emerging businesses. The specific problem of delayed payment to suppliers and
contractors often aggravates the financial position of small enterprises and further
hampers their access to funds. Although the present tendering conditions provide for
payment within 30 days, the actual period is often significantly longer than this.
ii. Proposals
- Payment systems should be streamlined and
rationalised.
- Electronic payment systems should be introduced.
- The audit procedures of interim payments in engineering and
construction works contracts should be revised.
- Interest at rates above the bank overdraft rates should be
paid to suppliers / service providers / contractors in respect of overdue payments.
4.13 Financing of suppliers, service
providers and contractors
i. Discussion
One of the major challenges facing many small, medium and
micro enterprises and emerging companies is their inability to attract sufficient debt and
equity capital to fund the growth of the enterprise. As enterprises succeed in obtaining
larger contracts their ability to internally finance themselves diminishes. Many of these
firms, while still growing, have not reached the creditworthy stage usually required by
traditional financing sources. Others, having utilised their existing credit lines, find
that their bank is unwilling to extend them further credit, even for the performance of a
contract.
ii. Proposals
The procurement system should make provision for:
- Mechanisms to facilitate factoring of payment certificates.
- Cession agreements with suppliers.
- Early payment cycles.
- Appointment of project administrators to facilitate early
payment cycles in engineering and construction works contracts, where this measure is
justifiable.
- Making monies available to third party management support
providers to enable them to facilitate payments on a fortnightly basis to emerging
contractors in certain engineering and construction works development
programmes.
4.14 Period contracts
i. Discussion
The contract strategy for period contracts in the past has
tended to favour the maximisation of the quantities of goods, services and works required,
the contract period and the geographic area served by such contracts. This policy is
generally not conducive to small, medium and micro enterprise participation and does not
geographically spread economic activity. There is accordingly a need to revisit the policy
relating thereto and to unbundle such contracts.
A contract strategy in respect of single versus umbrella
(multi-activity) contracts or facilities management needs to be determined. Furthermore,
attention needs to be paid to the determination of the optimum contract period, as long
period contracts:
- afford departments and providers of goods, services and
works greater time and incentive to understand and co-operate with one another.
- allow suppliers to recover the cost of any investment (e.g.
training, plant or new technology) required for the contract.
In circumstances where delay in delivery can result in
consequential costs being incurred or where the commodity is not always available,
consideration needs to be given to the awarding of contracts to two or three suppliers /
service providers to permit consumer organs of State to have some flexibility. The most
favourable tender will be accorded preferred contractor status and the secondary and
tertiary contractors would only be approached should the preferred contractor be unable to
supply or deliver. Consideration can also be given to implementing a system of performance
guarantees in terms of which a cash deposit is provided at the commencement of a contract
by the preferred contractor. This cash deposit can then be used to compensate the State
for any cost premiums arising from non-performance.
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ii. Proposals
Period contracts, in order to permit small, medium and
micro enterprise participation, should be structured taking cognisance of the following :
- Contracts should procure items in quantities suitable for
execution by small, medium and micro enterprises as prime contractors
- Human resource specifications can be used as a tool for
unbundling.
- Small, medium and micro enterprises who match prices of
large contractors / service providers / suppliers could be permitted to provide such items
as alternative suppliers.
Period contracts can be used as a means of equipping
emerging contractors / manufacturers with plant. In some circumstances, contracts should
be awarded to two or three suppliers / service providers with one of these contractors
being accorded preferred contractor status.
4.15 Emergency Procurement
i. Discussion
Situations arise from time to time, wherein life, property
and human well-being are threatened and rapid action is required to remedy, or alleviate,
the situation, which may have resulted from among others :
- a natural event, such as a flood, or an earthquake
- the failure of a facility or service
- an accident
- war or civil commotion
- failure, over an extended period, to carry out essential
maintenance and upgrading of a facility.
When a situation requiring rapid remedial action arises in
respect of a facility for which an organ of State is responsible, it is essential that
such organ should have readily available the means of procuring the services of competent
contractors, suppliers and service providers in the shortest possible time. The extent and
nature of the services required will probably be known only in broad terms, but this
cannot be permitted to delay the commencement of delivery.
Criteria need to be set and certification systems to be put
in place to ensure that this system of procurement is not abused and only used in specific
circumstances.
ii. Proposals
A Rapid Delivery Procurement System should be established
which :
- enables contracts to be awarded within one month of
permission being obtained to proceed, whilst being transparent, equitable, fair, cost
effective, and competitive.
- not place organs of State at undue risk with respect to
failure to deliver, cost overruns or cost premiums.
- be flexible enough to accommodate Reconstruction and
Development Programme principles and socio-economic objectives.
- be easily audited.
- assign clear responsibilities for the parties which are
involved.
The criteria warranting the use of the Rapid Delivery
Procurement System for an emergency should be that one, or more of the following
conditions exist, or there should be an imminent danger of it about to exist :
- The possibility of human injury or death.
- The prevalence of human suffering or deprivation of rights.
- The possibility of damage to property, or suffering and
death of livestock and animals.
- The interruption of essential services, including
transportation and communications facilities.
- The possibility that the security of the State could be
compromised.
- The possibility of serious damage occurring to the natural
environment.
- The possibility that failure to take necessary action may
result in the State not being able to render an essential community service.
- The prevailing situation, or imminent danger, should be of
such a scale and nature that it could not readily be alleviated by interim measures, in
order to allow time for normal procurement systems to be used.
- Available details of the nature and extent of the work and
services required should be insufficient to permit an accelerated, or normal procurement
system to be used.
The accounting officer in the organ of State wishing to
utilise Rapid Delivery Systems should certify that the emergency meets the abovementioned
requirements.
4.16 Stimulation of local economies
i. Discussion
Local economic development is an area of great promise, but
which is fraught with difficulties owing to the skewed nature of the South African
economy. The major factor in this imbalance is the economic dominance of large
corporations. Perhaps the most serious consequences is the limit to ongoing, sustainable
job creation.
While small businesses have burgeoned in recent years, they
have concentrated on the retail sector. This is due to the limited availability of
technical skills, lack of access to primary resources (such as land and capital) and price
controls on raw materials which reduce the competitiveness of small firms. The challenges
confronting proponents of local economic development are enormous.
Clearly government has to focus beyond administrative and
service provision roles and take on the role of economic catalyst. Such a function should
lead to new practices in procurement which will promote the development of small
manufacturing, service and construction enterprises.
Preferences, in the past, have been utilised to protect
regional industries in much the same manner as the local tenderers are afforded protection
from foreign tenderers. Such practices can, however, have severe impacts on neighbouring
areas, as such preferences cause market distortions. Typically, those protected by such
preferences inflate their prices in the local economy and dump their products at lower
prices in neighbouring areas. Furthermore, such preferences are difficult to administer.
The selection of contract strategies, the packaging of
contracts and the employment of affirmative procurement practices can, on the other hand,
tip the scales in favour of the local economy. In particular, Affirmative Procurement
which seeks to engage the participation of small, medium and micro enterprises is to a
large extent self targeting towards local enterprises.
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ii. Proposals
- Contract strategies, the packaging of contracts and
affirmative procurement practices should be used to stimulate local industries.
- Preferences outside of a National Procurement Framework for
local suppliers, service providers and contractors or local content, designed to advantage
those located in specific geographical areas over neighbouring regions within the
boundaries of South Africa, should not be permitted.
- Local authorities should implement contractor / manufacturer
development programmes in their areas of jurisdiction in order to develop target group
enterprises who are capable of participating in participation programmes.
- Local authorities should interface with national and
provincial organs of State in respect of engineering and construction contracts, in order
to secure the contract strategy, and delivery and targeting options which best serve the
local economy on contracts put out by such bodies.
- Local and regional authorities should establish data bases
of local suppliers, service providers and contractors in order to award contracts having a
low financial value to such enterprises where a less formal tendering system is permitted.
4.17 Contracts having low financial
values
i. Discussion
The present system of obtaining telephonic or verbal price
quotations (no tenders are invited) for contracts under a certain value - R20 000 in the
case of the State Tender Board (usually from a minimum of three suppliers), excludes many
of the emerging small, medium and micro enterprises. The system is dependent on a data
base of approved suppliers. Any business not on the approved list is excluded from the
market.
ii. Proposals
- Suppliers of goods and services falling into this category
of contract should register with the relevant Procurement Office / Centre for the category
of goods and services for which they wish to be registered.
- New applications for such registration should be advertised
in the press and data bases should be updated at regular intervals.
- Quotations should be invited from a number of suppliers on a
rotating basis.
4.18. National Standards
i. Discussion
National Standards, in the current South African context,
is the collective term for Specifications, Codes of Practice and Test Methods which are
published by the South African Bureau of Standards as national documents.
Standardisation is becoming more and more
internationalised. The Agreement on Technical Barriers to trade within the WTO Agreement
of Tariffs and Trade is also very explicit in its requirements for the harmonisation of
standards on a regional and international basis. These trends are given further impetus by
the massive harmonisation exercise currently underway in the European Union (EU). A
similar drive is expected to take place within the Asia - Pacific Economic Community
(APEC) in the near future.
South Africa cannot stand aloof from these developments.
International trade is vitally important. Accordingly, standards should become more
internationalised. In the electro-technical sector about 40% of the national standards
have been aligned with International Electro-Technical Commission's (IEC) standards. In
the non-electro-technical field approximately 15% have been aligned with the International
Organisation for Standardisation's (ISO) standards, and in the telecommunications field,
virtually all national standards are aligned with the international standards, mostly
European Telecommunication Standards Institute's (ETSI) standards.
Construction standards have historically been based on
British standards. As Britain has now become part of the European Union, it follows that
construction standards should be aligned with that of the European Union. (The cement
industries have already adopted the European standard and are manufacturing according to
this specification, SABS EVN 197-1, and have adopted the nomenclature for cement contained
therein).
ii. Proposals
- Standards should become more
internationalised.
- Construction material standards should become increasingly
aligned with those of the European Union.
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4.19. Labour Issues
i. Discussion
Contractors, suppliers and service providers are, in so far
as their labour is concerned, responsible for complying with the provisions of various
pieces of legislation such as: the Labour Relations Act.; the Workmen's Compensation Act;
Unemployment Insurance Fund; and Occupational Health and Safety Act. Compliance with such
legislation has a direct cost impact on suppliers. Frequently, unscrupulous employers fail
to comply in order to maximise profits, or have insufficient capital to meet these
financial commitments.
Labour standards have traditionally been enforced through
courts of law, either in terms of criminal proceedings, or in terms of civil proceedings.
Inspectors have been empowered to confirm and enforce compliance with such standards. The
system is, for various reasons, cumbersome, ineffectual and time consuming. Frequently,
cases are inconclusive or result in a warning, a suspended fine or an insignificant fine
being handed down.
Criminal proceedings should not be the primary mechanism to
encourage and enforce compliance with labour-standards. There should be a range of
remedies available to encourage and enforce compliance in an expedient manner, some of
which could relate to the procurement system.
On engineering and construction works contracts, because of
the historic distinction between the building and construction industries, minimum wages
differ between the industries. The problem is further complicated by the collapse of
Industrial Councils in some regions. The Framework Agreement for Labour Intensive
Construction and Community-based Public Works Programmes further complicates matters. For
example, at present, two companies, the one allied to the building industry and the other
to the civil engineering industry could quite easily be tendering for a building
development. The civil engineering contractor is required to price for his locally
recruited labour being paid the rates determined for the Magisterial district in question,
whereas the building contractor can price his tender using the same labour but on the
minimum going rate should the area not be covered by an Industrial Council. If
another project "just up the road" is being administered in terms of the
Framework Agreement, there is yet another wage rate for the same activities. Likewise,
different wage rates and service conditions may exist on Community-Based Public Works
Programmes which are administered by the community.
It is submitted that the status quo does not permit fair
and equitable tender price comparisons to be made, is confusing, does not lead to the
development of sustainable community enterprises and encourages contractors to engage
subcontractors or informal sector enterprises who do not observe minimum wages, in
order to remain competitive. A common wage order for all those engaged in construction
activities, which takes account of regional and project specific variations and is based
on the classification of job activities within which there may be grades of skill, would
go a long way to resolving the aforementioned problems. Payment linked to productivity as
opposed to time spent on the job could be permitted for categories of work for which
labour may be substituted for machines in order to create jobs e.g. excavation activities,
construction of road base courses, surfacing of roads, etc.
In countries where discrimination has been practised,
particularly on racial lines, affirmative action programmes have been implemented to
reinforce both equal employment and business opportunities with a view to removing
disparities in employment practices and business ownership between different groups of
people, usually on the basis of race and gender. Affirmative action, when properly
applied, should reinforce equal opportunity concepts and should not imply
"preferential treatment" or "reverse discrimination". Affirmative
action endeavours to ensure that all segments of society have the same opportunity to
participate on the basis of open competition and to advance according to relative ability.
Various proposals have been made regarding employment
equity in so far as public sector procurement is concerned. These include:
- Deregistration of contractors who do not have employment
equity programmes or continue to embrace discriminatory employment practices.
- Prequalifying tenderers on the basis of compliance with
employment equity requirements.
- Selecting tenderers for the award of contracts on the
strength of their equity programmes/plans
- According preferences to tenderers who have implemented
employment equity programmes in their companies.
- Requiring all tenderers to specify the following in their
tenders in order to assess the usefulness of the tendering process in furthering broader
social aims:
- the number of employment opportunities created, levels of
remuneration, and probable race and gender of employees;
- the nature and extent of probable human resource
development;
- the race and gender of owners and managers.
Some have argued for quotas and targets to be established
in terms of national legislation to implement affirmative action. Others in turn have
argued for companies to become companies which may be viewed as being progressive in their
orientation and conduct.
What needs to be established is which route will best serve
the interests of employment equity viz., tax incentives, procurement activities or
legislation or a combination thereof. Furthermore, the practicalities associated with the
implementation of employment equity by means of such routes needs to be established. For
example, should it be decided to accord preferences in public sector procurement for
aspects of employment equity, employment equity will have to be defined, quantified,
measured and audited in order to establish compliance during the performance of the
contract in such a manner that companies of different sizes are not unfairly treated.
(Small companies, because of their size in terms of turnover and employee compliment may
subscribe to employment equity principles but may take years to implement such policies
due to low turnovers in their employee complement and slow growth in the size of the
company).
ii. Proposals
- Suppliers, service providers or contractors who abuse labour
standards should be disciplined by being deregistered and excluded from participating in
public sector procurement for a period of time.
- Contracts in contractor development programmes should be
awarded to emerging contractors only after an independent party has verified that the sum
tendered has the potential to meet minimum labour standards.
- A common wage order applicable to all engineering and
construction works projects, which is flexible enough to accommodate payment on the basis
of outputs in specific circumstances, should be strived for in order to remove market
distortions and enable tenderers to tender on an equitable basis.
- Employment equity should be linked to procurement only in
instances where it can be adequately defined, quantified, measured, verified, audited and
be implemented in a manner in which companies of different sizes are equitably treated.
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4.20. Short term service contracts
i. Discussion
Where there is a shortage of particular skills in an organ
of State or a short term crisis has developed, short term service contracts for some
particular service may be required. Procurement in such circumstances can be very
sensitive.
ii. Proposals
Short term service contracts should embrace the following
set of principles:
- The contract should make provisions for technology transfer
and capacity building.
- The service provider should follow sound environmental
principles.
- Officials and employees of organs of State should not be
prejudiced by such appointments.
- Service providers should be accountable to the people they
service and be responsive to the needs and problems of users.
The performance of service providers should be monitored,
and only those service providers who have the competence, capacity and availability of
suitable personnel be entrusted with such contracts.
4.21. Subcontracting issues
i. Discussion
Subcontractors have very little negotiating power with
prime contractors due to the fact that there is always a "next job syndrome";
non payment by the prime contractor; and victimisation.
Some of the problems expressed by subcontractors include
the "Hawking" of prices submitted to prime contractors by them in order to
obtain lower prices from others (i.e. the practice of Dutch Auctioning); the risk of
non-payment; the use by prime contractors of hard earned subcontractors' monies as an
interest free overdraft facility and prime contractor bodies frequently representing
subcontractor interests at forums.
Invariably, as employers only have a relationship with the
prime contractor, they regard subcontracting issues to be the prime contractor's problem
and of no concern to them. Subcontracting is an effective means of involving small, medium
and micro enterprises in public sector procurement activities. As such, the plight of
subcontractors cannot be ignored. Accordingly, measures need to be taken to address the
shortcomings in the current subcontracting arrangements, particularly in respect of
engineering and construction works contracts. Such measures could include some or all of
the following:
- The establishment of Trust Funds or other such secured
payment routes.
- Mechanisms to deal with late payments.
- Protection against prime contractor insolvency.
- Outlawing of Pay-when-Paid practices; the use of unfair
set-off; provisions which seek to prevent access to adjudication or frustrate its
conclusions.
- Introduction of fair conditions of subcontract.
- Introduction of Alternative Dispute Resolution procedures in
standard forms of subcontract.
ii. Proposals
- The conditions of subcontract should be regulated in public
sector procurement in order to ensure that subcontractors are engaged in terms of fair
conditions of contract.
- Contractors who contravene the proposed provisions contained
in the code of conduct relating to subcontractors should be deregistered.
- Secured payment routes should only be considered should the
other measures which have been proposed not address the root causes of late, or non-
payment.
4.22. Allocation of risk and change
management
i. Discussion
Risk cannot be eradicated, but can be managed; it is better
to be proactive rather than reactive. Organs of State should identify and access
procurement risk on a case by case basis. As a general rule, the aim should be to allocate
risks to those best able to manage them provided that the cost of transferring them to
that party does not exceed the cost of retaining them. In many cases, this will be the
supplier, contractor or service provider. Transferring risk to these parties may provide
them with an incentive to improve their performance. Forcing them to accept risks which
they have no chance of managing is, however, likely to be both costly and futile. Where
there is doubt about where a risk should be, organs of State should compare the cost of
transferring it with the cost of retaining it themselves.
In engineering and construction works contracts, the risks
which need to be considered include construction risk; delays, performance and operational
risks; commercial risks; and political, legal and financial risks in various forms. Risk
management can involve:
- identifying preventative measures to avoid a risk or to
reduce its effects.
- proceeding with a project stage-by-stage, initiating further
investigation to reduce uncertainty through better information.
- considering risk transfer in the contract strategy, with
attention to the motivational effects, and the control of risk allocations.
- considering risk transfer to insurers.
- setting and managing risk allowances in cost estimates,
programmes and specifications.
- establishing contingency plans to deal with risks should
they occur.
Risk management will not remove all risk from projects; its
principal aim is to ensure that risks are managed most efficiently. Inevitably, certain
risks will have to be borne by organs of State. Allowances for residual risks should be
made in estimates of time and cost.
Contract documents are tools for managing risks. Their
purpose is to determine the consequences of particular risks which have been identified.
Contracts should accordingly clearly define the respective responsibilities of the parties
and be flexible enough to deal with inevitable changes. The management of changes to
requirements presents a special challenge. The importance of the clear allocation of risk
and the management of change cannot be underestimated, particularly in contracts of a
developmental nature, where third party management support is involved. Clear guidelines
in this regard are required.
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ii. Proposals
- Organs of State should identify and access procurement risk
on a case by case basis.
- Risks should be allocated to the party best able to manage
them.
- The State should bear the cost of risks where the cost of
transferring them is greater than that of retaining them.
- Organs of State should exercise risk management in a
proactive manner and should make budgetary allowances to cover residual risks.
- Contract documentation should clearly and unambiguously
assign risks to the contracting parties.
4.23. Insurances
i. Discussion
Insurance is not a substitute for effective risk
management. Insurance is only intended to deal with measurable or known risks and shifts
the impact of loss so as to reduce it. Insurance cannot deal with uncertainty itself and
cannot prevent loss.
Most physical risks can be insured against. For example, in
engineering and construction works contracts a contractor can have some of his risks
covered by effecting insurance such as Contract Works Insurance; Public Liability
Insurance; SASRIA Special Risks Insurance; Removal of Support insurance; general insurance
cover for plant owned or hired by them; or Professional Indemnity Insurance.
Many standard forms of construction contracts require the
contractor to effect Contract Works and Public Liability insurances and to extend such
cover to subcontractors. Some require that in addition, contractors effect SASRIA and
Removal of Support Insurance. Most National and Provincial Departments require contractors
to effect the relevant insurances. On the other hand many public utilities and local
authorities have their own Contractor's All Risk policies under which the majority of work
put out to tender is automatically insured through their Principal Controlled Insurance
which may comprise a mix of conventional and self insurance. In such cases, contractors
need only to effect any supplementary insurance cover such as insurance of construction
plant and equipment, including tools, office and other temporary structures and contents,
except those intended for incorporation into the Works; insurance in terms of the
provisions of the Compensation for Occupational Injuries and Diseases Act of 1993; motor
vehicle liability insurance; and insurances for the manufacture / fabrication of portions
of the works at premises other than the contract site.
There are many advantages to both the State and emerging
contractors / small, and micro enterprises should the State have Contractors All Risk
policies under which the majority of work put out to tender is automatically insured by
them. In contractor development programmes, insurance excesses can in some instances be
higher then the amount of profit on labour only contracts and as a result can cause a
contractor to incur financial losses to the extent that he cannot continue with the
contract.
The State self-insures its own assets. As a result, many
uncertainties exist regarding insurances on the renovation and repair of buildings and
what cover contractors have when effecting repairs.
ii. Proposals
- Organs of State should either insure for procurement related
physical risks, establish risk management programmes or make advance provision for losses
associated with such risks.
- Suitable arrangements should be made to ensure that
insurance related excesses in the case of emerging small and micro enterprises do not
cause such businesses to fail.
- Organs of State should investigate the benefits of Principal
Controlled Insurance for their given circumstances.
4.24. Guarantees
i. Discussion
Client bodies are exposed to a certain amount of risk
particularly in respect of engineering and construction works contracts, to the extent
that contractors may fail to perform or provide a defective product. This can have direct
financial implications in so far as rectification and completion of the works is
concerned, and consequential financial implications resulting from the delayed occupation
or possession of the assets that are created. Delayed completion also inevitably results
in increased construction costs. As a result, client bodies require contractors to lodge a
security guarantee and retain an amount from interim certificates in order to cover some
of this risk. Prime contractors in turn, in order to minimise their risk, often require
subcontractors to provide similar guarantees. (Guarantees are seldom called for by the
State Tender Board in respect of contracts involving the procurement of goods and
services; certain local authorities require guarantees for most contracts involving goods
and services).
A performance bond may be described as a three party
contract between the employer, the contractor and the surety, guaranteeing performance by
the contractor with a stated financial benefit in the event of non-performance. Retention
is held by the employer as an insurance for the correction of defects not attended to by
the contractor. Construction guarantees provided for in some private sector building
contracts, covers more than a performance bond and effectively places insurance against
failure to perform and failure to rectify defects at a single source.
Performance bonds should not be confused with retention
monies which are intended to cover the cost of making good defects in construction.
Performance bonds are intended to cover the additional cost of completing the works where
the works are interrupted prior to their completion due to the termination of the contract
for reasons which may include contractor insolvency, or failure to perform.
In so far as small, medium and micro enterprises / emerging
construction businesses are concerned, this presents a significant financial hurdle to
overcome in the pursuit of being awarded contracts. Furthermore, such enterprises, because
of their greater risk factor presented to sureties, usually have to obtain their
performance bonds at significantly higher rates than the large well established firms.
Accordingly, they not only struggle to secure bonds, but have to do so at a cost premium.
Specific strategies and innovations are required to enable
small, medium and micro enterprises / emerging construction businesses to obtain the
necessary performance bonds. The provision of tender guarantees also needs to be
considered, particularly where tenderers compete on the basis of both price and
development objectives. Tender guarantees may also be necessary to afford organs of State
some degree of protection from irresponsible tenderers. Such guarantees should, however,
not be set so high as to discourage tenderers from tendering.
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ii. Proposals
- Performance guarantees should be commensurate with the
degree of contractual risk to which organs of State are exposed.
- Tender guarantees which are not unduly high, should be
called for in large and complex contracts in order to minimise the submission of
irresponsible tenders.
- Performance guarantees should spread the cost of the risk of
failure between the contracting parties and should not be set at such a level that all the
State's costs relating to such failure are likely to be recovered.
- Adequate provision should be made in all engineering and
construction works contracts to ensure that monies are available to rectify defects.
- Performance bonds in engineering and construction works
contracts should be waived only in respect of low value, low risk contracts or where the
risk of failure is carried in an acceptable manner by a third party.
4.25. Training in construction projects
i. Discussion
It is generally acknowledged that the lack of skills is one
of the four major constraints facing small and micro enterprises. Training in the
construction industry has historically been indirectly linked to procurement through the
Manpower Training Act of 1981 which permitted the minister to declare a scheme created by
any group or association of employers, for the training of employees within given
parameters, to be binding in respect of the industry in which they are engaged. This piece
of legislation has led to the creation of Training Schemes managed by organisations who
are empowered to levy compulsory payment from employers. Thus the cost of training is
included in the contract price of participating employers.
In the construction industry, Training Schemes are
administered by the South African Federation of Civil Engineering Contractors and the
Building Industries Federation of South Africa. Participating contractors include the cost
of levies in their tender prices in order to have access to training of their employees.
Emerging contractors, not being members, do not price for training as they do not pay
levies. As a result, they frequently have no access to industry-based training.
On projects which are designed to engage marginalised
sectors of society in construction activities, the training costs are an order of
magnitude higher than the aforementioned levies; typically allocations of between 5% and
10% of the contract price are called for. Such training raises a number of issues:
- should the funding of training be sourced from project
budgets; if so should it be on a project specific or on a regional / provincial / national
programme basis?
- who should control and oversee expenditure?
- who decides on what training should be procured and on what
basis?
- how do you measure value for money provided by training
providers?
- what type of training should be provided?
- how do you quantify training requirements for a particular
project?
Another issue relating to procurement is that of value for
money. The determination of value for money on a project specific basis is difficult to
determine as the necessity and impact of such training in the long term is difficult to
access, particularly where new capacity is generated.
ii. Proposals
The distinction should be made between short term
RDP-related development objectives, which are project-related but programme-driven, and
the medium / long term human resource development of the industry. Training should be
integrated with the product. As such training needs should be determined jointly by organs
of State and industry. Training should be undertaken on a programmed approach and not on a
project specific basis. Training should be regionalised and managed by implementing
departments or their delegated agents in co-operation with employer bodies / associations
on a provincial basis.
Training should be measured in terms of regional structured
training plans (human resource development strategies) in order to establish value for
money.
Accordingly, provision for training, except for on-the-job
training, should not be made in construction contracts. The services of training providers
should be procured in the same manner as that proposed for the appointment of consultants.
[ Top ]
4.26. Adjudication of engineering and
construction works tenders involving emerging / community contractors
i. Discussion
Emerging / community contractors who undertake to perform
certain construction functions and require third party management support to execute their
contracts should be afforded some protection from tendering unrealistically low rates. The
acceptance of unrealistically low prices will inevitably lead to failure of such
contractors and increased costs to complete contracts. Furthermore, as labour is usually
the largest cost component of such contracts, low tender prices will invariably translate
into unacceptable wage payments to workers.
In most contractor development programmes outside of South
Africa in sub-Saharan Africa, contractors are not selected by means of competitive
tendering. A common way to select contractors for participation in programmes is to invite
members of the public to fill out an application for training. Applications are processed
and participants are selected on the basis of criteria which are dependent upon the
objectives of the programmes. Graduates from training courses are then offered fixed-rate
period contracts. Further fixed-rate period contracts are granted should they demonstrate
satisfactory performance. This system has not succeeded in fostering an entrepreneurial
spirit amongst contractors, who invariably remain entirely reliant for their livelihoods
on work handed to them in this manner.
International donor bodies have tried to break out of this
deadlock by insisting that contracts be awarded on the basis of competitive tendering and
have advocated the acceptance of tenders on the basis of a banded price around an
estimate, which is made known prior to the closing of tenders. Tendering consequently
degenerates into "estimate plus" bidding.
ii. Proposals
Any system which is adopted to award contracts to emerging
/ community contractors should be based on the following:
- contractor selection should be on the basis of demonstrating
credentials through the submission of tenders.
- prices should be controlled but not imposed.
- participants should learn to price work from the outset.
Tenders should be adjudicated in terms of an estimated
price, prepared by a person responsible for either preparing the contract documentation or
providing third party management support. Tenderers who price below a predetermined
percentage below the estimate should be automatically rejected. Tenders should be awarded
to the tenderer whose price is immediately above the cut off value. In the interests of
transparency the method of adjudication should be made known to tenderers. The estimate
should, be kept secret and be only read out and recorded immediately prior to the public
opening of tenders.
4.27. Environmental Issues
i. Discussion
Organs of State can encourage their suppliers, service
providers and contractors to behave in an environmentally friendly way by integrating
their concern for the environment with their procurement activities.
Organs of State should implement policy which will
influence the behaviour of vendors to:
- comply with all environmental legislation
- offer less environmentally damaging products and services
- develop products from recycled materials.
Procurement policy may require vendors to provide proof of
their commitment to environmental protection. This may take the form of statements on the
steps companies are taking to reduce their impact on their environment, or alternatively
to demonstrate that they are not in breach of any statutory requirements relating to the
environment.
ii. Proposals
Organs of State should:
- buy only from vendors who are in compliance with all
environmentally-related legislation
- promote environmental awareness amongst suppliers, service
providers and contractors
- favour procurement of less environmentally damaging products
- discriminate in favour of products made from recycled
materials
- require that suppliers limit packaging to the minimum
necessary to protect the items supplied
- favour products which provide information about their effect
on the environment
- develop the environmental awareness of government officials
- develop and maintain a database of vendors in which
information relating to their environmental conduct is retained
- develop and promote a code of conduct for vendors
- develop a policy with respect to the use of products
containing asbestos
Suppliers, service providers and contractors should:
- comply with the requirements of all environmental
legislation
- require that their suppliers and sub-contractors in turn
comply with all environmental legislation
- consider the environmental impact of their products over
their full life cycle from 'cradle to grave'
- minimise the use of energy, non-renewable resources,
hazardous chemicals and toxic substances
- maximise the use of recycled materials
- minimise the production of waste
- dispose of all wastes in an environmentally responsible
manner
- not offer products or packaging containing CFCs, HCFCs,
halons, carbon tetrachloride and other ozone depleting substances.
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5. CONCLUSION: THE WAY FORWARD
Studies have indicated that government expenditure is of
such significance that it is a vital component of economic and social progress and as such
plays an important role in the transformation process. To overcome the legacy of
discrimination and neglect, South Africa must, above all, create conditions for
sustainable growth. Any new procurement policy needs to be sensitive to the urgent demands
of addressing the present socio-economic imbalances within the context of a global economy
and the need to apply accepted principles of good governance. Clearly, South Africa needs
to create and adopt new and imaginative procurement policies that will address the
country's requirements for equity and social upliftment while, at the same time, allowing
it to be internationally competitive .
The aim of this Green Paper is to give all South Africans
the opportunity to contribute to the change process that will have a profound effect on
all. South Africa is facing enormous challenges, both locally and internationally, as it
opens the economy to the combined impact of global investment and free trade regulations.
It is envisaged that a coherent and adequately resourced procurement policy will
contribute to the national objectives of:
- developing and utilising the country's human resources
potential to the full
- a well-developed business sector capable of participating
fully in the new South African economy
- an improved quality of life for all
- improved international competitiveness for South African
economic activity
This Green Paper sets out the key elements of the
Government's new strategy for procurement. In addition, the evolving institutional
framework through which the strategy should be implemented has also been outlined. It
should be clear that all these proposed polices, institutions and systems cannot be
developed without government adopting a vigorous approach to implement this framework. The
government has put in place a process, involving public consultation, aimed at developing
the best policies to achieve it's goals. The Green Paper process, should result in the
formulation of new Procurement Policy for South Africa, ultimately to be published as a
White Paper.
It is recognised that the subject matter of this policy
needs to be considered with other related Government policies and initiatives in an
integrated and structured manner.
This Green Paper has sought to identify the key issues to
be addressed by government policy and to suggest some of the available options. The Paper
is designed to raise questions about these options, by discussing the merits or otherwise
of adopting them, in an effort to stimulate public debate. It is not a statement of
government policy, but outlines issues and options to which the South African public are
invited to respond and make contributions that will eventually help shape government
policy. The culmination of the process will be the publication of a White Paper and the
beginning of legislative reforms pertaining to procurement.
Constructive participation will enable Government to
respond more effectively to the needs of South Africa in this important area of reform.
The Green Paper has drawn on the experience of other societies and nations who have
grappled with similar issues. The common features include building on existing strengths
and restructuring government policies and programmes to support the principles of Growth,
Employment and Redistribution as outlined in the macro-economic strategy. However,
ultimately, it is for all South Africans to determine the best course of action to meet
the country's challenges and to accept joint responsibility for implementing the changes
required.
The desired output of this process is to develop world
class professional procurement polices and systems while ensuring the productive
participation of previously disadvantaged persons in a manner that promotes
entrepreneurship and the adoption of best practice within all South African businesses
while improving international competitiveness.
Although policy choices are involved, the implementation of
this new vision is the responsibility of all South Africans. There are no shortcuts if the
country is to make the transition to full economic maturity.
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AFFIRMATIVE
PROCUREMENT IN BRIEF
Affirmative Procurement in a practical and pragmatic manner
affirms the changed environment in South Africa, government's socio-economic objectives
and the principles of the Reconstruction and Development Programme. It enables organs of
State to operationalise policies in a targeted, transparent, visible and measurable manner
when engaging in economic activity with the private sector, without compromising
principles such as fairness, competition, cost efficiency and inclusion.
Affirmative Procurement comprises participative programmes
aimed at the engagement of small, medium and micro enterprises owned by previously
disadvantaged persons and the increasing of the volume of work available to the poor and
the income generation of marginalised sectors of society.
[ Top ]
Key elements associated with Affirmative Procurement are:
- The recognition that:
- procurement may be used as an instrument of government
policy.
- value for money need not be a measure of monetary cost
alone.
- goods, services and works can be procured both in terms of
human resource and technical specifications.
- participation of targeted individuals, groups of people,
communities and enterprises can be secured by means of a development objective / price
mechanism, a human resource specification or a combination thereof.
- The use of development objective / price mechanism
(points scoring tender adjudication procedure) as a means of:
- measuring a tenderer's human resource and financial offer
(i.e. value for money).
- adjudicating of tenders.
- ensuring that premiums, if any, paid in respect of socio
economic or development objectives are within acceptable limits.
- favouring certain targeted individuals, groups, communities
or practices without excluding those who fall outside of such target groups from
tendering.
- encouraging the private sector to use their skill, knowledge
and creativity in responding to socio economic and development objective challenges in a
cost effective manner.
- The use of human resource specifications in order to:
- define target groups
- set goals (targets), measured in monetary terms, which may
be met by engaging the target groups in the pursuit of predetermined socio-economic /
development objectives.
- provide for the measurement of key indicators to ensure that
goals may be quantified and audited during the performance of the contract.
- set out how goals can be achieved, and the penalties which
are to be applied should a contractor fail to achieve the contractual goal.
- The classification of contracts in order to facilitate
standardisation in approach and the targeting of business enterprises/local
resources
- The use of the third tier of government in order to
effect area bound (specific) targeting relating to marginalised sectors of society in
construction projects.
Affirmative Procurement has two main legs:
- A development component which ensures that the target group
is capable of participation.
- A structured participation component which ensures that the
target group is engaged in the provision of goods, services and works.
Affirmative Procurement, without resorting to set asides
and price preferences can be used in an effective, efficient, transparent and cost
effective manner to:
- put in place a programme of affirmative action to address
the deliberate marginalisation from economic, political and social power of previously
disadvantaged individuals and sectors of society.
- develop small businesses, particularly those owned and
operated by black entrepreneurs.
- provide jobs in a targeted manner on engineering and
construction contracts.
- increase the number of employment opportunities per unit of
expenditure.
- promote acceptable labour practices and standards.
Affirmative Procurement seeks to ensure that public funds
are expended in a such a way that all segments of the South African population benefit
from such expenditure through job creation and commercial activity. It makes the tender
process accessible to the target group without guaranteeing work and links the flow of
money into targeted business enterprises with a commitment flow of responsibility.
It has as its aim, in the long term to :
- promote development objectives with a focus on human
resource development.
- provide opportunities for skill transfer, capacity building
to acquire experience.
- encourage commitment to human resource development and
social responsibility programmes within organisations to specifically, redress historical
imbalances.
- facilitate growth in terms of the efficiency and
effectiveness of delivery as well as numbers and size of business owned and controlled by
previously disadvantaged individuals.
- ensure that emerging enterprises contribute to the tax base,
engage workers who are affiliated to labour associations, adhere to safety regulations and
reflect norms and standards in their business activities associated with those of
developed countries.
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[ Top ]
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THE PILLARS OF
PROCUREMENT REFORM
GENERAL
- The strategy of procurement should be to achieve continuing
improvement in value for money, based on whole life cost and quality and to enhance the
competitiveness of suppliers through the development of world class professional
procurement systems and practices.
- Organs of State should seek to embrace efficient and
effective procurement practices and systems and so deliver the services which they are
mandated to do in the required quantities and quality in compliance with Constitutional
provisions.
- Government should focus beyond administrative and service
role provisions in its procurement practices and take on the role of economic catalyst in
the transformation process
- Organs of State when engaging in procurement activities
should adhere to the preservation of the highest standards of integrity, objectivity,
fairness, efficiency and professionalism.
- Success in the economic environment requires government to
play a clear policy co-ordination role which is likely to have a wider application in the
rest of the public sector, and indeed in the private sector.
SOCIO-ECONOMIC REFORM
- Public sector procurement should be structured in a manner
that promotes economic reconciliation and competitiveness.
- The structuring of contracts should be such that small,
medium and micro enterprise participation is maximised without compromising time, cost and
quality.
- Value for money should not be based on least cost alone; it
can include well defined socio-economic criteria which can be evaluated in a transparent
and measurable manner.
- Targets should be set and delivery systems should be
designed to facilitate one or more of the following :
- The development of small, medium and micro enterprises
particularly those owned and operated by previously disadvantaged persons;
- The increasing of the volume of work available to the poor
and the income generation of marginalised sectors of society;
- Affirmative action to address the deliberate marginalisation
from economic, political and social power of black people, women and rural communities and
to empower communities and individuals from previously disadvantaged sectors of society;
subject to such targets being readily definable,
quantifiable, measurable, auditable and verifiable.
- The policy of targeting must not compromise the principles
of fairness, competition, cost-efficiency and inclusion, and should be subject to periodic
review.
- The procurement process should be made accessible to the
target groups, and structured in a simplified and user-friendly manner.
- The third tier of government should identify area bound
targets and select associated delivery mechanisms.
- Organs of State should take cognisance of regional and local
dynamics when implementing procurement policy and associated practices
- International competition should not prejudice local
enterprises and should be used as an opportunity to develop and advance local industry
through technology transfer and human resource development.
THE PILLARS OF PROCUREMENT REFORM
INSTITUTIONAL REFORM
- Procurement must comply with the provisions of the
constitution, support macro economic policies, be an instrument of the transformation
process and promote tax morality and improve labour standards.
- National legislation should prescribe a procurement
framework which regulates procurement procedures, practices, documentation, policies,
preferences and control measures in all organs of State.
- Procurement control and monitoring should be exercised by a
national Procurement Compliance Office whose functions should be to ensure that
procurement agencies comply with the national procurement legislation and framework and
associated regulations.
- The Procurement Compliance Office should have five
specialist arms which have functional responsibilities in respect of registration,
administration, socio-economic affairs, technical matters and education and training
respectively.
- Existing national and provincial Tender Board Acts and Local
Government Ordinances pertaining to procurement, should be repealed; the existing State
and Provincial Tender Boards should be disbanded.
- Offices of Tender Boards (as opposed to the Boards
themselves) should be reconstituted as Procurement Offices responsible for central
tendering and certain ad hoc contracts.
- Consumer organs of State should be authorised to act as
Procurement Centres in order to procure goods, services and works, based on predetermined
criteria.
- A code of conduct should be drafted to govern the actions of
procurement officials and those engaged in providing goods, services and works.
- The Procurement Compliance Office should regulate and
prescribe all documentation in order to achieve a uniform procurement system with standard
tendering procedures and contract documentation.
- All enterprises which contract with organs of State should
be registered and all targeted enterprises certified.
- Standards and specifications should result in appropriate
quality being procured to satisfy user needs and should not be used to exclude emerging
enterprises from participation.
- Parastatals should not unfairly compete with the private
sector and should comply with the provisions of a National Procurement Framework.
- A comprehensive training and skills development programme
should be embarked upon to ensure that procurement officials have the necessary
procurement skills.
- Measures should be taken to ensure that the effects of the
WTO's Code on Government Procurement do not impact negatively on the overall objectives of
South African socio-economic reform.
- In the interim, a preference system for local content, or an
offset policy with a bias towards export promotion, should be used to support the local
economy in the face of foreign competition.
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INVITATION TO COMMENT
The Ministries of Finance and Public Works welcome any
comment, criticism or concern on the proposals made for the reform of the public
procurement process from all interested parties. Please address your correspondence to:
The Secretariat : Procurement Reform
Private Bag X49
PRETORIA
0001
Fax. (012) 323 4669
e-mail. procure@gov.za
Comments should reach the Secretariat on
or before 30 June 1997.
Machiavelli (1514):
"It should be borne in mind there is nothing more
difficult to arrange, more doubtful of success and more dangerous to carry through than
initiating changes in a state's constitution.
The innovator makes enemies of those who prospered under
the old order and only lukewarm support is forthcoming from those who would prosper under
the new."
A lack of response from those who are earmarked to benefit
from Procurement Reform would indicate that the same is true in this case.
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ACKNOWLEDGEMENTS
The Ministry of Finance and the Ministry of Public Works
would like to acknowledge the contribution of the following in the procurement reform
process culminating in development of this Green Paper:
Co-chairpersons of the Procurement Forum:
- Sivi Gounden - Deputy director General, Public Works
Department
- Jan Breytenbach - Chief Director, Office of the State Tender
Board
Task Team:
- Deen Letchmiah - Consultant
- Ron Watermeyer - Consultant
- Josh Nkosi - Consultant
- Officials for the Departments of State Expenditure; Trade
and Industry; and Arts, Science, Culture and Technologies.
Other organisations:
- Various central and provincial departments
- Various short term local consultants
- Labour representatives, business sector, professional
organisations and institutions, international experts and the like.
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Last modified: 09 April 2010 09:04:00. |
