The soon to be ‘new’ preferential procurement framework

That being said, almost all organs of state have a desire to create and implement a preferential procurement policy. As a result, the framework contained in the Procurement Bill will become a critical reference point for organs of state.

In this article, we highlight key features of the framework, which can be found in Chapter 4 of the current bill.

A good point of departure for this article is the first provision under Chapter 4, section 16, which seems to suggest that a procuring institution must implement a preferential procurement policy. However, this has to be an overstatement because the Constitution does not compel an organ of state or institution to implement a preferential procurement policy. Instead the compulsion is for national legislation to prescribe a framework. The obligation on procuring organs of state or institutions is to develop their preferential procurement policies within that framework, but that obligation is only triggered should they decide to implement a preferential procurement policy of their own. This is concerning because it appears that, in section 16, the Procurement Bill is creating obligations that are not contemplated by section 217 of the Constitution. Ideally, section 16 of the Procurement Bill should read that where a procuring organ of state or institution intends to develop a preferential procurement policy it must do so within the framework prescribed by the Procurement Bill, but it does not, and it appears that the liberal use of the prescriptive term “must” is a hallmark feature of Chapter 4, as will be seen in what follows.

The contents of the framework

Moving on, section 17 introduces a novel concept – namely “set aside” – which is something that is not found in the current Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA) (which will be repealed with the enactment of the Procurement Bill) nor was it found in the repealed 2017 Preferential Procurement Regulations (which were declared unconstitutional by the Constitutional Court). In summary, it requires procuring organs of state or institutions to set aside bids for people listed in the sub-provision, which includes Black people, Black women, women, people with disabilities, as well as small enterprises owned by these people, among others. The concept can be likened to something similar to employment equity, save that employment equity is not as prescriptive as “set aside” aims to be. Again, the provision uses the term “must” which implies that a procuring organ of state or institution has no choice in the matter. The only choice it appears to have is that it can determine which people in the list it intends to set aside bids for, but this discretion may be superficial as the Minister of Finance is required to publish specific targets that procuring organs of state or institutions must reach.

In addition to the “set aside” concept, the notorious pre-qualification criteria makes a reappearance in the Procurement Bill. The reason it is notorious is because it was the subject of a legality challenge in Afribusiness NPC v Minister of Finance 2021 (1) SA 325 (SCA) where the Supreme Court of Appeal held that pre-qualification was inimical (incompatible) with section 217(1) of the Constitution. This finding was not interfered with by a majority of the Constitutional Court, which strongly suggests that the finding of the Supreme Court of Appeal on the lawfulness of pre-qualification is trite law – for now. Of course, it may be argued that any form of preferential procurement itself is inimical to section 217 of the Constitution; as it must be, in order to effect change, but that is a topic for another day, or perhaps a challenge in another court. For now, the point is that pre-qualification makes a return, and like every other provision is something that “must” be implemented by procuring organs of state and institutions.

Either way, the retention of the set aside concept and pre-qualification in the Procurement Bill and the ultimate implementation of them once enacted is likely to have a significant impact in respect of the demographic profile of service providers for procuring organs of state and institutions.

The Procurement Bill then prescribes that “where feasible” a procuring organ of state and institution must ensure that a prescribed minimum level of subcontracting is included in bids that exceed a prescribed threshold amount which we assume will be determined by the Minister of Finance or National Treasury. Compared to the “set aside” concept and pre-qualification, sub-contracting is a non-contentious form of ensuring skills transfer and transformation that has been part of the preferential procurement process since the 2001 Preferential Procurement Regulations.

Interestingly, the Procurement Bill also creates a legislative basis for local production and content. Previously, local production and content requirements were issued and made mandatory by National Treasury through circulars issued under the now-repealed 2017 Preferential Procurement Regulations. However, it turned out that there was no legislative basis for including local production and content requirements into the preferential procurement matrix, because it did not fall within the ambit of section 2(1) of the PPPFA. This was confirmed by National Treasury in the Rationale for the Draft Preferential Procurement Regulations 2022 document, and is also the reason why the mandatory requirement for local production and content has all but disappeared and no longer appears in the current 2022 Preferential Procurement Regulations. With the inclusion of the requirement in the Procurement Bill, there will be a legislative basis that provides for local production and content requirements. Conceptually, using state resources to promote local production and content requirements if implemented correctly can have a positive effect on transforming the economy.

Apart from these big-hitting provisions, most of which were previously featured in the repealed 2017 Preferential Procurement Regulations, the Procurement Bill also provides a catchall provision to state that if for some reason the big-hitting provisions are not applicable, other preferences must be allocated as prescribed. It also makes provision for procuring organs of state and institutions to take steps to advance sustainable development in procurement, which is something topical at the moment, as well as to take steps towards beneficiation and innovation, advancing the creation of jobs, intensification of labour absorption and the development of small enterprises in specific geographical areas, all of which can translate into a positive trajectory for the economy.

Finally, the Procurement Bill seeks to introduce a legislative basis for contract management, providing procuring organs of state and institutions an option to set milestones and levy penalties for failing to meet them. Proper contract management is critical to ensuring state resources are used efficiently and that value for money is achieved by procuring organs of state and institutions.

Conclusion

The Procurement Bill has come under fire for being too prescriptive, which may be a legitimate criticism given the liberal use of the term “must”, which removes the discretion and flexibility that should be available for procuring organs of state and institutions in developing their own preferential procurement policies. In addition, the Procurement Bill has been criticised as being a copy/paste of the 2017 Preferential Procurement Regulations, which may be true to some extent. These critiques may be taken on board and the Procurement Bill may see further revision as it is still going through another round of public participation in the National Council of Provinces. But if it stays in its current form, there is no doubt that it will have a significant impact on how state recourses are used. Whether that impact moves the needle towards achieving the transformative goals of the Constitution is something time will reveal.