PLW 470 S - PUBLIC PROCUREMENT

1. NATURE OF PUBLIC PORCUREMENT

Public procurement has its origins in the fiduciary obligation of government
administrations to deliver goods and infrastructure, for example roads and harbours and
services, health care and education to the population of a country or a specific geographic
region, city or town. Public procurement refers to the government activity of purchasing
the goods and services needed to perform its function. It involves the purchase of
commodities and contracting of construction works and services if such acquisition is
effected with resources from state budgets, local authority budgets, state foundation
funds, domestic loans or foreign loans guaranteed by the state, foreign aid and revenue
received from the economic activity of state. public procurement is ‘the acquisition
(through buying or purchasing) of goods and services by government or public
organizations’.

Based on the above, public procurement can be defined as:

“Public procurement is the function whereby public sector organisations acquire goods,
services and development and construction projects from suppliers in the local and
international market, subject to the general principles of fairness, equitability,
transparency, competitiveness and cost-effectiveness. It includes many activities that
support the service delivery of government entities, ranging from routine items to complex
development and construction projects.”

2. PURPOSE OF PUBLIC PROCUREMENT REGULATION

What is tendering?
It is the process of making a formal written offer to carry out work, supply or purchase
goods and services for a stated, certain, fixed price.
In SA administrative law, tendering is well known as the process by which the public sector
can procure a wide range of goods and services from the private market.

Government needs goods and services in order to fulfill its daily tasks and functions. These
needs are met in 2 ways:
1. In-house - government establishes own functions and hires own professionals in order to
obtain goods and services .
2. Public sector procurement contracts - government obtains goods and services from the
public market.
 Goods and services obtained by the public sector is funded mainly by public money ie
taxpayers money.

Therefore, the purpose of regulating public sector procurement is important because:

1. Of the outflow of large amounts of public money and in order to regulate the
expenditure of public funds
2. Empower/increase the use of previously disadvantaged groups
3. To limit possible corruption
4. For all 3 levels of state to function optimally.

There are various legislative frameworks that regulate the entire procurement process in
South Africa. These are discussed in detail below.

3. LEGISLATION APPLICABLE TO PROCUREMENT PROCESS

3.1. THE CONSTITUTION OF THE REPUBLIC OF SOUTH AFRICA ACT 108 OF 1996
The principle piece of legislation that regulates public procurement is the Constitution of
SA.

S33provides for just administration which provides for a safeguard and protects individuals
against any abuse of power by organs of state.

S215, s216, s218, and s219 directs the National Treasury to introduce norms and standards
within the government. These norms and standards imposed by National Treasury have a
direct impact on all spheres of the government procurement process.

S217 directly governs the procurement all government spheres and institutes the main
principles used by all spheres of government to procure goods and services.

These principles are stated in s217 as:

a. Fairness
b. Equity
c. Transparency
d. Competitiveness
e. Cost- effectiveness

S217 (1) states: “when an organ of state in the national, provincial and local spheres of
government or any other institutions identified in the national legislation, contracts for
goods and services, it must do so in accordance with a system that is fair, equitable,
transparent, competitive and cost-effective.”

These principles must be used to guide all stages of the procurement process in the public
sector. The entire legislative framework regulating government procurement in SA is based
upon these 5 foundational principles which is echoed in various further pieces of
legislation.

S217(3) provides for legislation that will prescribe a framework within which the policy
must be implemented.

3.2. PROMOTIONOF ADMINISTRATIVE JUSTICE ACT 3OF 2000

Because government plays an important role in the public procurement process, it is
important for it to adhere to administrative law of SA.

PAJA mainly regulates the administrative systems of SA in order to ensure justice and to
give all persons affected by admin actions a right to be heard.

PAJA gives effect to s33 of the Constitution and ensures that the principles of lawfulness,
reasonableness and procedural fairness are upheld.

S3 and s4 of PAJA deal with procedural fairness.

PAJA is therefore important to ensure public procurement procedure complies with the
constitutional principles.

It also binds all levels of government.

3.3. PUBLIC FINANCE MANAGEMENT ACT 1 OF 1999

PFMA and the Regulations thereto govern the procurement process on national and
provincial government level.

S5 gives specific duties to an accounting officer of the state to ensure that the state has
and maintains a ‘transparent’ system of financial and risk management and internal
control.

It states further that an accounting authority of a public entity must uphold a procurement
system which is fair, equitable, transparent, competitive and cost-effective.
Ito the Regulations it specifically states the Preferential Procurement Policy Framework Act
5 of 2000 (PPPFA) AND Broad-Based Black Economic Empowerment Act must be included
in all tender documentation.

On the national level the PFMA applies to specific institutions including:

• National and provincial state departments as defined in the Public Service Act 103
of 1994.
• Listed major public entities, national government business enterprises and other
public entities.
• Listed constitutional institutions.
• Provincial legislatures.

3.4. LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT 56 OF 2003

This Act governs procurement at local government level.

On the local level the MFMA applies to the following:

• All municipalities.
• All municipal entities.
• National and provincial organs of state to the extent of their financial dealings with
municipalities.

It regulates, among others, the manner in which municipal powers and functions are to be
exercised and performed and the management of financial affairs of the municipalities and
other institutions in the local sphere of government.

Chapter 11 of MFMA governs goods and services and more specifically governs the Supply
Chain Management (SCM) policy.

S111 of the MFMA specifically directs: “Each municipality and each municipal entity must
have and implement a SCM policy which gives effect to the provisions of this part.”

S112 provides guidelines that municipalities must follow when drafting and implementing
its SCM policy.
Supply Chain Management:
In SA SCM is an important tool for managing public procurement. The aim of SCM is to add
value at each stage of the procurement process – from the demand for goods and services,
to their acquisition, managing the logistic process, and finally after use, to their disposal.
In so doing, SCM aims to address deficiencies in current practice relating to procurement,
contract management, inventory and asset control.

3.5. PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT 5 OF 2000 AND

REGULATIONS
Governs procurement on all 3 levels of government. The Act was specifically introduced to
comply with s217(2)(a) of the Constitution which states:

“…does not prevent organs of states or institutions referred to in that ss from

implementing a procurement policy providing for – (a) categories of preference in
the allocation of contracts.”

It furthermore establishes the manner in which preferential procurement policies are to

be implemented.

The functions of the PPPFA is to give effect to s217(3) of the Constitution by providing a
framework for the implementation of the procurement policy contemplated in s217(2) of
the Constitution and to provide for matters connected therewith.

The Regulations to the Act are there to guide government entities on how to implement
the PPPFA. The Act and the Regulations go hand in hand and cannot exist without the
other.

The PPPFA Regulations are applicable to organs of state defined as including:

• National and provincial departments.
• Municipalities.
• Constitutional institutions.
• Parliament.
• Provincial legislatures.
• Other organs of state that are included in section 239 of the Constitution and are
recognised by the Minister of Finance as institutions to which the PPPFA applies
(no such other organs of state have been recognised by the Minister of Finance).
 3.6. THE PROMOTION OF EQUALITY AND THE PREVENTION OF UNFAIR
DISCRIMINATION ACT 4 OF 2000

Prohibits the state or any person from discriminating unfairly against any person on the
grounds of race or gender through the denial of access to contractual opportunities for
rendering services or by failing to take steps to reasonably accommodate the needs of such
persons.

4. THE TENDER PROCESS IN SOUTH AFRICA

The tender process consists mainly of 6 stages:
1. preparing of the request for an invitation to tender.
2. Calling for tenders
3. Submission and receiving of tenders
4. Opening of tenders
5. Assessing of tenders
6. Awarding of tenders

This can be categorized into 4 periods, namely:

1. Pre-award period – which consists of all stages prior to the awarding of a tender.
2. The award period
3. Conclusion of the contract period
4. Period after the conclusion of a contract until the contractual performance is completed.

Since the Constitution came into effect, various Acts have come into operation in order to
regulate the public sector procurement process.
For example: MFMA governs in section 112 (1)(g) that each supply chain management policy,
as implemented by the different municipalities, regulate the bid documentation, advertising
of and invitations to tender.
PPPFA states that the only acceptable tenders may be considered ie complies with the
specifications and conditions of tenders as set out in the tender document.

4.1. INVITATION TO TENDER

Consists of published advertisement in the Government Gazette and local newspaper.
The ad consists of a short summary of:
- Invitation to tender
- A tender deadline
- Contact details of the particular state organ
 It will state where and when the bid documentation can be collected and when a briefing
conference and/or site visit will be held.
The invitation to tender must adhere strictly to all relevant legislation and guidelines.
Chapter 11 Part 1 of the MFMA has direct implications on the drafting of an invitation to
tender.
S112 of the MFMA gives direct guidelines to each municipality for the drafting and
implementation of its own Supply Chain Management policy.

Each municipality must therefore ensure that it drafts all invitations to tender within the
ambit of its own supply chain management policy.
S116 of the MFMA requires that all procurement contracts and processes must take place
in writing and must include clauses to regulate the termination of the contract, any
resolution mechanisms and review of the contract.

4.2. OFFER AND SUBMITTING OF A TENDER

When submitting a tender, you are in fact making an offer in line with the invitation to tender.
The PFMA and the PPPFA gives National Treasury specific duties in regulating the tender
process.
It states that all associated forms must be accompanied and attached to the submitted
tender.
A valid tax clearance certificate is a mandatory requirement in all tenders.
In the Preferential Procurement Regulations the importance of BBBEE status level certificate
was emphasized and made compulsory to all bidders.
Regulation 11 states that certain requirement are made mandatory in order for the tender to
be valid.
Regulation 12 states - a mandatory declaration clause must be included in order for the
tender to be valid.
The PPR clearly states that a tender may only be awarded to a person whose tax matters have
been declared to be in order by the SA Revenue Services.

4.3. ACCEPTANCE AND AWARDING OF A TENDER

After the closing date for the submitting of tenders, the submitted tenders must be opened,
recorded and evaluated.
The PPPFA preferential procurement regulations implements an evaluation process that must
take place with due regard and including a preference point system, the evaluation of
functionality and price.
 The tender may only be awarded to a bidder if the offer made is in exact compliance with the
invitation to tender.
Acceptance letter is then posted by Registered mail and/or hand delivered to the successful
bidder.

A formal contract then comes into effect.

It is vital that all necessary legislation and regulation be used when drafting any part of the
tender documentation as one wrong step can have a detrimental effect on the validity of any
contract on the ground of unfairness, inequitableness and insufficient transparency.

4.4. CANCELLATION OF A TENDER

Regulation 10(4) of the PPPFA Regulations provides that an organ of state may, prior to the
award of a tender, cancel the tender if:
• due to changed circumstances there is no longer a need for the services, works or
goods requested;
• funds are no longer available to cover the total envisaged expenditure; or
• no acceptable tenders are received.

This is however not considered to be a closed list. In a recent judgment the Supreme Court
of Appeal held that the decision to cancel a tender prior to its award is not administrative
action and therefore cannot be challenged on review by a tendering party.

In cancelling a tender, an entity is generally considered to be required to act in a manner

that is procedurally fair. This includes giving adequate notice of the intention to cancel the
tender which indicates the main considerations for the contemplated action giving the
affected parties the right to make representations.

Procurement contracts may be cancelled in certain circumstances. In the event that a

procurement contract has been advertised and awarded and subsequently cancelled, a
tenderer would have recourse. The point of departure would be to follow internal
procedures in an attempt to provide representations or receive reasons as to the decision
behind the cancellation of the procurement contract. Should the internal remedies bear
no fruit, the cancellation can be taken on review within the framework of PAJA as it would
constitute an administrative action.
 5. THE IMPORTANCE OF THE 5 CONSTITUTIONAL PRINCIPLES FOR PROCUREMENT
5.1. COMPETITIVENESS
To a large extent “competitiveness” is interrelated with the principle of “cost effectiveness”.
An organ of state should try to obtain the best possible value for money as far as possible. A
competitive procurement system will assist in obtaining the best value for money.

Competition can be defined as: “The rivalry that naturally exists in the market between those
engaged in a similar economic activity, whether the activity be the production, distribution,
sale or purchase of goods or services.”

Competition provides incentives to increase efficiency and forces inefficient or marginal

service providers out of the market. Competition provides powerful incentives to develop
new ways of providing a service. Competition helps to minimize costs.

In the government context, therefore, this means that a government contract can only be
awarded after several entities have been afforded an opportunity to compete for a particular
contract. This can be done, for example, by means of:

- Calling for tenders (RFPs)

- Quotations
- Competitive negotiation
-
There can, however, only be genuine competition if all parties are given a genuine chance to
participate and a sufficient number of competitors must participate.

Given that public procurement is funded with taxpayers’ money, all qualified firms and
individuals should be allowed to participate by submitting bids and/or proposals on
requirements for which they are qualified. Additionally, public procurement requirements
should be widely disseminated to increase the chances of a good market response leading to
the award of competitively priced contracts.

The basic idea behind this principle is that competition leads to reasonable price, quality and
is good for the economy.

5.2. TRANSPARENCY
The notion of transparency or openness is of the utmost importance in South African Law.
One of the objectives of the South African Constitution is to lay the foundations for a
 democratic and open society. Transparency or openness is one of the core values of South
Africa as a democratic state.

In government procurement, procurement must be done by means of a system that is open

and should not be done behind closed doors. Information should be generally available (rules
and practices).
Criteria that will be used to select contractor must be available – for this reason tendering
should be the preferred method of selecting contractors as the procedures used are more
open.
Transparent procurement methods assist better decision making and combat corruption.

The main purpose of transparency therefore is to promote openness in the public

procurement system so that all the stakeholders will be enabled to have unhindered access
to information about the procurement activities and thereby reduce potential public
procurement corruption.

5.3. FAIRNESS
Free from discrimination, just and appropriate in the circumstances, impartial in conformity
with rules or standards, treating people equally, unbiased, uncorrupted and unprejudiced”
public procurement is of an administrative law nature and “fair” referred to in section 217(1)
can be said to refer to procedural fairness.

Procedural fairness finds application in two distinct relationships in the public procurement
process:

- Relationship between an organ of state and private contracting parties.

- Relationship between an organ of state and private contracting parties in relation
to each other traditionally procedural fairness consist of two elements: audi
alteram partem (right to be heard) and nemo iudex in sua causa (rule against bias).

The organ of state should treat all possible contracting parties fairly in relation to each
other. No preferences should be given to different contractors. All parties should have
equal time for preparation and submission for tenders or quotes. The same information
should be made available to all parties. An organ of state should treat all parties equally; it
should not be biased or suspected of bias.

Therefore, procedural fairness means at least the right to a fair hearing and the right to
actions that are not tainted by bias.
 In SA however, to address past inequalities, the right to equality, entrenched in section 9
of the Constitution, has been held to reflect a “substantive” conception of equality as
opposed to a “formal” conception of equality.

In other words, in certain defined circumstances an organ of state is allowed to treat

private contracting parties differently.

5.4. EQUITY
Equity calls for an individualised application of legal norms that normally tend to operate
generally and it helps ensure that these norms cater for the singular demands of dissimilar
concrete situations.

Instead of treating all groups exactly the same, groups who face different levels of resources
and development should receive different treatment. In this sense, equity is also linked to
affirmative action. This links up with sections 217(2) and 217(3) of the Constitution, which
also makes provision for the preferential allocation of contracts and the use of procurement
as a means to address the inequalities and unfair discriminatory practices of the past.

5.5. COST EFFECTIVE

Definition: Functioning or producing effectively and with the least amount of effort. In public
procurement, cost effectiveness finds application throughout the procurement process, such
as:
- Planning stage
- Process of procurement
- Contract maintenance/administration

In principle, an organ of state should procure goods or services from an outside entity, as
opposed to providing it in-house only if doing so will lead to costs savings, BUT lowest price
offered is not the only factor to be taken into account, as “value for money” is not
necessarily the same as lowest price.
Factors such as promptness of delivery, reliability in services, level of future operating costs
or compatibility with existing equipment may indicate acceptance of some other than the
lowest tender.