A new report by Sakeliga, released today, shows how state entities in South Africa can legally end BEE, local content rules, and other harmful preferential procurement policies, and forge a better path.
The report comes in the wake of the promulgation last week of preferential procurement regulations that for the first time in many years omit all reference to BEE and local content. The regulations were issued in order to comply with a Constitutional Court order, handed down in Sakeliga’s favour in February this year, that the Minister of Finance may not prescribe to state entities what their procurement policies should be.
While the new regulations are to take effect from 16 January 2023, Sakeliga’s report shows that municipalities and other state entities can stop applying BEE and local content rules immediately.
This should be welcome news to the state entities that collectively submitted more than 700 applications for exemption from preferential procurement regulations to National Treasury since February this year, and even to those who might have been unaware of their discretion. A list of these entities, as obtained from National Treasury under a PAIA request, can be found at this link.
Despite the prevailing common presupposition that municipalities and other state entities are bound to invariably implement preferential procurement policies when advertising, adjudicating, and awarding a tender, neither the Constitution nor the PPPFA imposes such a requirement. The apparent “requirement,” in other words, is a political, not a legal one.
In the months and years ahead, we see an important role for chambers of commerce, rate-payers associations, and other civil society organisations in holding municipalities and other state entities to their constitutional duty to do value-for-money based procurement. Sakeliga will seek to support them in this.
Summary of the report
How can municipalities in South Africa preserve a flourishing constitutional order, despite attempts to convert them, at public expense, into mere instruments of national government objectives fundamentally at odds with constitutionalism?
This report reconfirms municipalities’ apparently forgotten but constitutionally mandated discretion and independence in procurement. A proper interpretation of the legislative framework for public procurement indicates that municipalities and other state entities should distinguish between normal value-for-money procurement under section 217(1) of the Constitution, and preferential procurement under section 217(2) of the Constitution. State entities are obliged to do the former, but not the latter.
In the wake of the Zondo Commission’s report, this report now paves the way for significant cost savings in government procurement and greater value for money for the public.
In part 1 of its report, the Zondo Commission asks about preferential procurement: “Is it the primary intention of the Constitution to procure goods at least cost or … to prioritize the transformative potential identified in section 217(2) [of the Constitution]?” The Commission answers as follows: “Ultimately in the view of the Commission the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.”
In stressing the discretion of municipalities regarding procurement, our report reminds them of their responsibility to maintain independent procurement policies and processes in service of their communities. While the report focuses on municipalities, where wide-spread service delivery failures highlight the public harms of procurement that diverts resources to satisfy B-BBEE and local content requirements, it applies to all organs of state and public entities.
The full report is available here.