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Tendering in South Africa

The language of procurement in South Africa differs radically from that employed by the World Bank, and the SA government does not use the term International Competitive Bidding. The combination of the vast amount of information available on the government websites and the difficulty of finding an authoritative person to clarify its policy, makes the SA government's procurement policy the hardest one to understand in Southern Africa.

Under the legislated system of racial segregation known as ‘apartheid' from 1948 to 1994, all South Africans were classified according to race as White, Coloured, Indian or Black. The best areas, schools, jobs, etc were reserved for Whites, the worst were provided to Blacks, while facilities for Coloureds and Indians were marginally better than those for Blacks. When the new non-racial government came to power in 1994 under Nelson Mandela, it received a mandate to redress the wrongs of the past. The black economic empowerment (BEE) procurement policy governing the procurement of goods and services by the South African state today is the result of policies and legislation introduced over the past 13 years.

With regard to tendering, the most important law passed is the Preferential Procurement Policy Framework Act (5 of 2000) and the accompanying Preferential Procurement Regulations, 2001. This law (the PPPFA) introduced a system of evaluating tenders in terms of a package of adjudication criteria with a maximum total of 100 points. Each bid is evaluated according to how much it scores in terms of each criterion, and the highest scoring bid in terms of all the criteria combined wins the appointment. The preference point system introduced by the PPPFA is based on the definition of a “Historically Disadvantaged Individual” (HDI): any SA citizen who had no franchise in national elections prior to 1994, who is female, or who has a disability. What makes the system fairly complicated is the fact that not all kinds of disadvantage receive the same number of points, and at present there is a proposal to remove HDI points from white females.

But how much preference does an HDI receive? In order to explain how the preference point system works, it is necessary to over-simplify two worked examples. It is very rare that price is the only consideration in a tender. Commonly, price is simply one factor amongst many other factors - such as experience in the work being considered, capital backing, number of staff located locally, etc. For the two worked examples below, only two factors will be considered: price and HDI status:

  • Tenders of less than R500 000 in value are adjudicated according to the 80/20 preference point system. According to 80/20 formula, a bid of R120 000 from a bidder with maximum HDI points will beat a bid of R100 000 with no HDI points.
  • Tenders of over R500 000 in value are adjudicated according to the 90/10 preference point system. According to the 90/10 formula, a bid of R1,1 million with maximum HDI points will beat a bid of R1 million with no HDI points.

What this means, is that in a tender where the variation in bid prices is wide, the preference points do not have an overwhelming influence on who wins the tender.

The second law of importance is the Broad-Based Black Economic Empowerment Act, 53 of 2003. According to this law, the Minister of Trade and Industry is to issue codes of good practice on BEE, and must issue a strategy and a plan for the financing of broad-based black economic empowerment. The Minister must also publish transformation charters for a particular sector of the economy once the major stakeholders of that sector have been consulted. With the publication of a number of codes of good practice by the Department of Trade and Industry in December 2006, a measure of certainty has been achieved with regard to how tenders are to be adjudicated in those sectors. However, this certainty must be tempered with the additional complexity that the codes have added with the introduction of the new 100 point scorecard system with seven areas of BEE opportunity: equity ownership (20 points), management control (10 points), employment equity (15 points), skills development (15 points), preferential procurement (20 points), enterprise development (15 points), and socio-economic development (5 points). A number of transformation charters have also been published, providing further certainty in some sectors.

According to the BBBEE Act, ‘black people' is a generic term that includes Africans, Coloureds and Indians. However, legal practitioners have pointed out two conflicts between the BBBEE Act and the PPPFA. Firstly, the BBBEE Act's definition of black people differs from the HDI definition in the PPPFA. Secondly, the PPPFA only lists one way of obtaining preferential points (i.e. ownership equity), while the BBBEE Act provides for seven areas of BEE opportunity. As tender disputes often end up in court, it seems likely that these contradictions between the two laws are likely to be tested in court shortly.

The third piece of legislation of importance for tendering is the Prevention and Combating of Corrupt Activities Act, 12 of 2004. According to this law, both the person who offers a bribe and the official who accepts the bribe, are guilty of the offence of corruption. The bribing of foreign public officials is also a crime under this law, as is the offering of inducements for the awarding of a tender. The maximum sentence that can be imposed by a High Court for the offence of corruption is life imprisonment or a fine. Once a person is found guilty of such an offence, his or her details are to be entered in the Register for Tender Defaulters (which is established by the Minister of Finance within the National Treasury). This registry is open to the public, municipalities and government departments in order to prevent those listed in the register from tendering in the future.

Although disputes over the awarding of tenders often end up in court because one bidder appeals against the award, this is not the only way that corruption is exposed. An alternative method of uncovering corruption in the awarding of tenders is by reporting the matter to the National Director of Public Prosecutions (of the National Prosecuting Authority of SA), who then appoints a special investigator to look into the matter.

Apart from the laws governing tendering, the government has published guidelines to assist members of the public service to run the tender process in a fair way. According to these guidelines, the five pillars of procurement are: value for money, open and effective competition, ethics and fair dealing, accountability and reporting, and equity. It is only with the fifth pillar (equity) that the issue of BEE preferential procurement points comes into play.

In South Africa, most tender advertisements are published in the media on Fridays. The State Tender Board publishes its weekly tender bulletin (online and hard copy) on Fridays, as are most of the provincial tender bulletins. Simultaneously, many of the tenders are published in the local, provincial or national newspapers on Fridays. Since 2004 the new term introduced by the National Treasury to refer to the procurement or tendering system is ‘supply chain management'. Although an adjudication panel is set up for each tender in the provinces, the Provincial Treasury's departmental bid committee must approve the awarding of the tender before it is finally awarded in public.

With regard to openness and transparency in the acceptance of tenders, the following general practice is observed: On the closing date of the tender, the tenders are opened in public, and the names of the bidders are read out. Only in the construction industry are the prices read out.

Most municipalities and government departments have drawn up registers of consultants and suppliers who have been pre-qualified to undertake work for the authority concerned. In some cases the authority concerned may refuse to accept a bid on the grounds that the bidder is not registered on its supplier database. In order to ensure that their tenders are accepted, it is a good idea for consultants to register on such databases before submitting their tenders. Although municipalities and provincial departments may restrict suppliers in terms of the work they are prepared to award them, such restrictions must be forwarded to the National Treasury, so that they can be recorded on the National Treasury's database.

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