Companies that do business with government: watch out

The National Treasury yesterday published the long-awaited draft Public Procurement Bill (the draft Bill) for public comment. The draft Bill has a positive aim: to simplify the confusing and fragmented rules that currently regulate public tender process into a single unified process that is easy for bidders and supply chain officials to understand and apply. However, there are some disquieting aspects of the draft Bill for those that do business with government - most notably regarding the lack of detail on key aspects of the public procurement processes which are left to be fleshed out later in regulations to be promulgated by the Minister of Finance.

The draft Bill appears poised to create further opportunities for black empowered businesses to grow but does not spell out exactly what form these measures will take. The feature causing the most disquiet in the draft Bill is that it creates significant uncertainty about the criteria that will determine who wins a tender and, for this reason, is arguably unconstitutional. At present tenders are determined on the basis of a preference points system. Tenders valued at under R50 million are awarded in terms of the 80/20 preference points system (where 80 points are awarded for price and 20 points are awarded for preferences based on the bidder's B-BBEE scorecard). While tenders valued at over R50 million are awarded based on the 90/10 preference points system (where 90 points are awarded for price and 10 points are awarded for preferences based on the bidder's B-BBEE scorecard).  

The draft Bill requires that the Minister of Finance determines a preference points system but, unlike the current laws, does not provide any constraint on the way the preference points system is structured. So for example, the Minister could decide in regulations to provide for a preference points system where 50 points are awarded to price and 50 points are awarded to preferences. In other words, the Minister has a wide discretion to determine how the preference points system would function, with no real guidance from Parliament) and could fairly quickly and easily change that system (although the regulations must be submitted for Parliamentary scrutiny).

This is arguably unconstitutional as the Constitution requires that the framework for preferential procurement must be set out in national legislation - the framework must be determined by Parliament rather than by the Minister in his sole discretion. It would be in the interests of all bidders - whether empowered or not - for the framework to be set out in legislation, so that they have certainty about how the award of tenders will be decided.

Other notable features of the draft Bill are that:

  • it seems to suggest that the Minister is required to put in place measures for organs of state to set aside certain government tenders so that only a limited category of persons may bid for that contract (and no one outside that category may bid even if they are capable of fulfilling the requirements of the tender). For example a tender could be set aside for only historically disadvantaged persons or only South African citizens or only businesses operating in a particular province or municipality;
  • it introduces a new more streamlined process for entering into public private partnerships;
  • a tender process may now also (in addition to the existing grounds) be cancelled: "where there is a significant change in the required technical specifications, bidding conditions, conditions of contract or other details", "in the interest of national security" and where "insufficient bids are received to determine competitiveness" and  the right to cancel is not expressly stated to apply only prior to the award of the tender;
  • disposal of state assets may take place through open advertised bidding, public auction, electronic reverse auction, restricted bidding or through any other method prescribed by the Minister or in respect of movable assets by auction, written price quotations, transfers to other organs of state or controlled dumping. Under the current laws there has been significant debate as to whether a procurement process should be followed for the sale and letting of state assets ;and
  • it establishes processes for reconsideration of decisions taken in competitive tender processes by the institution itself or by a national regulator or provincial treasury. If the bidder is still unsatisfied the decision can be reviewed by a Public Procurement Tribunal, established in the draft Bill. These processes are aimed at addressing the landslide of protracted procurement litigation by providing cheaper and more cost effective relief to bidders and at reducing the negative impact on service delivery. It is notable, however, that a decision made by the Public Procurement Tribunal may be judicially reviewed by a court, and therefore the process could end up being even more drawn out.​

The public is required to submit comments on the draft Bill by 31 May 2020.