Time’s up for tenderpreneurs as new Public Procurement Act tackles corruption loopholes that led to looting by middle-men

‘Corruption is the name, procurement is the game.” That’s how former deputy finance minister Mcebisi Jonas described the increased opportunities for corruption and exploitation in the government’s extensive and fragmented procurement system. The description was proffered during Jonas’s testimony at the Zondo Commission of Inquiry into State Capture in 2019.

Government departments, state organs and state-owned enterprises (SOEs) procure goods and services worth about R1-trillion every year (buying basic things such as stationery, toilet paper, furniture, construction materials and other larger goods), making them the largest buyers in the country.

The procurement process is lucrative and open to abuse, as seen during the State Capture years when individuals linked to the Gupta family and former president Jacob Zuma used loopholes to syphon billions of rands from the state.

One of the procurement provisions that was abused was that government departments, state organs and SOEs such as Eskom and Transnet could procure goods and services through middlemen or agents, or third parties.

Often, the middlemen met procurement and preferential requirements such as being from previously disadvantaged groups, in other words, having a favourable broad-based black economic empowerment (BBBEE) profile, or being located in a particular geographical area.

State Capture years

During the State Capture years, procurement contracts were awarded to middlemen who had strong BBBEE credentials but did not necessarily have the experience or expertise in providing goods or services.

In some cases, the middlemen did not add value to the procurement process. This paved the way for more than R40-billion to be looted at Transnet, almost R7-billion at Eskom, about R250-million at state-owned arms manufacturer Denel, more than R62-million at the SABC and almost R27-million at state-owned airlines SAA and SA Express.

The Public Procurement Act

To address loopholes in the procurement system, President Cyril Ramaphosa has now signed into law the new Public Procurement Act, which outlines far-reaching measures to standardise procurement practices in all state organs.

A big change that the act brings is a new public procurement office, overseen by National Treasury. The office will be tasked with issuing binding instructions and guidelines for procurement matters to all government departments, SOEs and state organs.

Accounting officers at this public procurement office will be charged with investigating allegations of corruption and checking to see whether bidders for state contracts appear on the register of blacklisted persons or companies. Bids with false documents, misrepresentations or blacklisted persons and companies must be rejected.

Read more: After the Bell: The ultimate futility of anti-corruption legislation

The act is in line with the Zondo Commission’s recommendations, which included the establishment of an independent body to identify abuses in the current procurement system and curb corruption.

The act still recognises the importance of social transformation that the government’s procurement system can foster. It does so by requiring government departments, SOEs and organs of state to develop and implement a preferential procurement policy, which must protect and advance “persons or categories of persons disadvantaged by unfair discrimination”.

These categories include black people, women, black women, people with disabilities, black people with disabilities, military veterans, persons in a particular geographic area, small enterprises, and youth and cooperatives.

To include these designated groups in the procurement chain, preference measures will be established, which include setting aside parts of a state contract for particular groups, establishing a prequalification process that allows certain groups to bid for a specific contract, and subcontracting measures so that parts of contracts are awarded to designated groups.

Industry response

The response to the act has come thick and fast, and most market watchers welcome it. The Black Business Council said Ramaphosa’s signing of the Act was “a historic moment in our democracy”.

“In our view, this is the most important legislation, secondary only to the South African Constitution. The legislation will ensure that the state is able to set aside procurement opportunities for blacks, women, youth and persons with disabilities. It will make it possible for President Ramaphosa to implement the 40% set-asides for women,” the council said.

With the introduction of standardised procedures and oversight mechanisms, the act is set to “minimise bureaucratic delays and reduce opportunities for corruption”, said Kamogelo Mampane, executive chair of the Supply Chain Council, a nonprofit association.

But the act also has its critics, most notably the DA, which described it as “race-based legislation”. 

“[The act] fails to address the core issue of systemic corruption plaguing South Africa’s procurement system, entrenches racial divisions and exacerbates inefficient public expenditure,” the party said. “Instead of creating an enabling environment for economic growth, it is poised to deepen economic stagnation and the cost-of-living crisis by imposing new, restrictive requirements.”

The act also requires that government departments, SOEs and organs of state prioritise locally produced goods and services in their procurement decisions, aimed at boosting local industries and creating jobs.

One unintended consequence of the act is that the procurement process might be more cumbersome for SOEs.

Both Eskom and Transnet have complained previously that procuring equipment and  services from original equipment manufacturers is a lengthy and bureaucratic process because they have to comply with various laws, including the Public Finance Management Act, the Municipal Finance Management Act and the BBBEE Act. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.