On September 17 the Constitutional Court struck down the Public Procurement Act. The judgment focused mostly on the lack of genuine public consultation, though substantive matters were also raised.
The National Treasury may be tempted to stick with its current approach and simply do a better job of consulting the public. That would be a pity. The act and its draft regulations are riddled with problems. The court’s decision creates the opportunity for a reset.
The public procurement system is one of South Africa’s great vulnerabilities. It is the gateway for the organised crime that is rampant in public institutions ranging from state enterprises to sector education and training authorities and local governments. Anyone who has followed the Zondo and Madlanga commissions is aware that the procurement system is easy to capture ― so easy that midlevel police officers, hospital staff or municipal employees can work with local gangsters to extract enormous sums of money.
The system is easily manipulated because it is not focused on preventing organised crime. It exists in a parallel universe where government officials are assumed to be well-intentioned and unlikely to co-operate with each other to rig the outcome of a tender. Procurement criminals often hide behind well-intentioned BEE rules and especially behind the support of the system for start-up companies.
The procurement system is highly decentralised, placing procurement decisions in the hands of thousands of different state entities. This is a problem because it is easy for criminals to target organisations that are not highly visible but still spend much money. The proposed act tried to respond to this problem by centralising many aspects of procurement, which the court has difficulties with. In the absence of centralisation, what are the options to prevent wholesale theft?
The key is to focus on the expertise of the proposed supplier and the price they are offering. This sounds obvious, but it is not. The system allows these factors to be overridden by ownership considerations and by a commitment to appointing start-up companies. These start-ups are often in no position to offer the service and simply subcontract to others, taking huge markups that they justify as a payment for their ability to access the system. Outside the state, the combination of track record and price are the key determinants in the choice of a supplier. Few private companies would allow a start-up company to supply a complex product or service.
The procurement system relies on a series of committees. The first specifies the service to be provided, the second evaluates the bids and a third makes the decision. This is meant to ensure some level of oversight and limit the influence of individuals. But the people serving in these committees work in the same organisations; they all know each other and can easily co-operate. As a method of preventing influence it has failed.
If the system shifts from a reliance on process to a focus on track record and value for money the space for criminals will be greatly reduced. Digital and AI systems should be used to weed out companies with links to officials and to demonstrate a track record in delivering services. Empowerment objectives should remain part of the decision-making, but they should not override expertise and price. Start-up companies should only be considered for a limited set of services.
The National Treasury should recognise the procurement system as a vulnerability and a platform for organised crime, and should move quickly to address this. The reform of public procurement is a component in building a capable state.
• Bethlehem is an economic development specialist and partner at Genesis Analytics. She has worked in the forestry, renewable energy, housing and property sectors as well as in local and national government. She writes in her personal capacity.
Business Day