Business and Economy

Overhauled tender regulations to benefit black suppliers

GetBiz CEO Andile Ntingi says amended preferential procurement regulations that kicked in on 1 April 2017 will benefit black and female suppliers. Photo: GetBiz

After fierce lobbying, back-and-forth deliberations and litigation threats, the National Treasury on 1 April brought into effect preferential procurement regulations aimed at securing a bigger slice of state tenders for black and female suppliers.

The Black Business Council (BBC), South Africa’s main mouthpiece for black businesspeople, has clashed with the Treasury over amendments to the Preferential Procurement Policy Framework Act (PPPFA) regulations in the three years it took to reform the policy before it was gazetted on 20 January this year.

The powerful lobby group agitated for the state, the single largest buyer of goods and services in our economy, to introduce tender set-asides whereby the state uses its buying power to channel 30% of its spending to black suppliers.

The BBC argued that the policy has maintained the apartheid economic status quo as it condemned black suppliers to junior “sub-contractors” to white-owned firms and foreign multi-national corporations, which take a lion’s share of lucrative state contracts.

The BBC threatened to take legal action to have the PPPFA scrapped, but later backed off.

In years gone by, the Treasury has vehemently opposed tender set-asides, arguing that their implementation would violate Section 217 of the constitution, which states that organs of state must procure goods and services in a manner that is fair, equitable, transparent, competitive and cost-effective. Furthermore, the Treasury felt that the set-asides were discriminatory as they would lead to white tenderers being excluded from bidding for ring-fenced contracts.

But the preferential procurement regulations that came into effect on 1 April neatly navigate Section 217 of the constitution in a manner that is compliant with the highest law in the land, while they significantly give black and female suppliers enhanced exposure to state contracts than in the past.

It is, therefore, not surprising that the amended preferential procurement regulations have not included tender set-asides as envisioned by the BBC.

Some of the key amendments to the PPPFA include the lifting of monetary thresholds for the allocation of preference points to bidders and the inclusion of stringent clauses that seek to promote BEE, particularly the requirement that forces preferred bidders to sub-contract 30% of their work to 51% black-owned Exempted Micro Enterprises (EMEs) or Qualifying Small Enterprises (QSEs).

The 30% sub-contracting clause will close the void of tender set-asides, but successful bidders will have to be strictly monitored to ensure that they pass on 30% of the value of projects to black and female suppliers.

The 30% sub-contracting clause will close the void of tender set-asides, but successful bidders will have to be strictly monitored to ensure that they pass on 30% of the value of projects to black and female suppliers.

As indicated above, the monetary thresholds for the allocation of preference points for scoring tenders have been hiked significantly from the previous thresholds for awarding tenders.

From now onwards, tenders valued from R30,000 to R50 million will be adjudicated on the 80/20 preference points system, whereby the lowest-price bidder will be allocated 80 points and a bidder with the highest BEE rating will be allocated 20 points. Previously the threshold for tenders awarded on the 80/20 preference points system was R1 million.

Government contracts worth more than R50 million will be adjudicated on the 90/10 preference points system, whereby 90 points are allocated to the lowest price bidder and 10 points to the bidder with the highest BEE rating. For the 90/10 formula, the previous threshold was above R1 million.

With the government – which spends R500 billion annually on goods and services – planning to invest R947.2 billion on infrastructure development over the next three years, the stakes were high and the BBC wanted its constituency to capture a big portion of this state procurement spending.

In 2015, the BBC shot down a proposal by the Treasury to award tenders valued up to R10 million on a 50/50 preference points system, with equal points allocated to price and BEE ownership.

The lobby group, led by former government spokesperson Mzwanele “Jimmy” Manyi, tore into this proposal, pointing out that it would confine black suppliers to a market for R10 million tenders. They demanded that blacks be given access to high-value state contracts worth billions of rand, a message that resonated with the strategy of developing 100 large-scale black industrialists.

The Treasury was forced to go back to the drawing board. Last year, it upped the ante, putting on the table proposals that advanced BEE. The Treasury kept the 80/20 and 90/10 preference points systems, but hiked monetary thresholds of tenders awarded using the respective formulas.

The department, responsible for executing South Africa’s fiscal policy, proposed that tenders valued up to R100 million be adjudicated on the 80/20 preference points system and tenders worth more than R100 million be awarded on the 90/10 formula.

The preferential procurement policy that has finally been enacted indicates that the Treasury retreated from this proposal.

However, the policy has come a long way since it made its debut in the first phase of BEE implementation between 1994 and 2003. Back then tenders valued up to R500,000 were awarded on the 80/20 formula and contracts valued more than R500,000 were scored on the 90/10 formula.

Now it remains to be seen whether the overhauled PPPFA will decisively open up the state’s supply chains to black and female suppliers, an objective that has been elusive over the last two decades.

 

  • Andile Ntingi is CEO and co-founder of GetBiz, an e-procurement and tender notification service.

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