/ 7 April 2022

‘Procurement purgatory’: A legal framework in urgent need of reform

Two decades ago, the Public Affairs Research Institute (Pari) characterised South Africa’s public procurement system as one “in crisis”.  Pari identified the complicated, fragmented and often inconsistent regulatory regime as one of the five major causes of this crisis. 

Twenty years later, part one of the Zondo commission report has dedicated 135 pages to the procurement crisis and tells us that the problem has “simply gotten much worse”. Like Pari, the Zondo report identifies the complex and fragmented legal framework as a major hurdle that must be overcome. 

Both the Pari and Zondo reports, and many in between, highlight that a weak, disjointed and unnecessarily complex regulatory framework promotes poor governance in public procurement. This causes a waste of taxpayers’ resources and results in a failure to relieve the marginalised from dire socioeconomic pressures.  Although political and administrative will are required to prevent the abuse of procurement processes by employees of organs of state — a clear, streamlined, strong legal framework, which demands transparency, good management, prevention of misconduct, accountability and control — is equally necessary to ensure better public procurement practices. 

The South African government spends about R800-billion on public procurement annually, the majority of which is meant to address the needs of poor and marginalised people. News reports, however, paint a grim picture of the fruitless and wasteful use of public funds meant for citizens. Shocking examples include the Passenger Rail Agency of South Africa’s spending of R2.3-billion for locomotives that could not be used, the annual payment of R108.3-million in rent for unoccupied office buildings by the department of defence, and the procurement of arms in the 1999 arms deal. In total, the latter cost South Africa about R142-billion for arms that are seldomly used.

READ MORE: Zondo report, part 1 and 2: a short overview

A chilling perspective on the harmful effects of ineffective procurement processes on learners is evident in the education sector. Thousands of schools still lack the essential resources they need to provide basic education, while the money meant to provide these resources is often wasted due to poor public procurement. The harm is felt by children, who struggle to learn because of classes being overcrowded; stationery and textbooks not being provided — on time or at all; and their lives put at risk as they are forced to use unsafe pit latrines.

There are several examples of the waste of public funds in the education sector. For example, in October 2020, the Bhisho high court halted a R538-million payment by the Eastern Cape education department due to irregularities in the awarding of a contract for matriculants to rent tablets. 

More recently, in February 2022, the Special Investigating Unit successfully challenged a decision by the Gauteng department of education to award contracts worth R431-million to “decontaminate” schools because the procurement process was “manifestly unlawful” and because the money was paid out to service providers through a process that was “haphazard, unfair and littered with procurement irregularities”. 

According to the auditor general’s 2019-20 PFMA Citizen’s Report, the KwaZulu-Natal education department has incurred at least R1.58-billion in irregular expenditure in the past three years; for its part, the national department of basic education incurred at least R80-million in fruitless and wasteful expenditure for infrastructure projects that were cancelled. According to the auditor general, the main reason for the irregular spending and the fruitless and wasteful expenditure was noncompliance with legislation in contracts or procurement processes, such as failing to follow policies on competitive bidding or seeking quotations on services sought. 

Public procurement is governed by section 217 of the constitution, which requires public procurement to be conducted in accordance with a system that is fair, equitable, transparent, competitive and cost effective. The Public Finance Management Act (PFMA) and the Preferential Procurement Policy Framework Act (PPPFA) give accounting authorities the power to determine how procurement processes will be conducted in an entity or department — a function over which the treasury exercises oversight. 

Although this is not a problem per se as each department or entity is, theoretically, best equipped to determine and implement its own procurement processes, this creates an “over-decentralisation” of procurement processes that creates numerous problems. 

First, there is no detailed procurement framework (giving effect to section 217(1) of the constitution) that guides the determination and implementation of supply-,chain management policies. Policies are, therefore, drafted and implemented haphazardly, creating confusion and leaving room for noncompliance. 

Second, it is difficult to monitor all procuring departments to ensure that supply-chain management policies are being complied with, and that their policies are, in fact, consistent with the PFMA and the constitution. Accordingly, officials may be conducting processes that are inconsistent with the legal principles, or they may not understand what is legally required of them. Unlawful processes thus go undetected, resulting in fruitless spending or wasteful expenditure.

READ MORE: Public procurement law is not the problem – people are

The regulatory framework also  lacks effective mechanisms for dealing with noncompliance. While departments responsible for procurement determine the rules regarding what ought to happen if noncompliance is detected, the accounting authority, as administrative head of the department, is also charged with implementing these consequence procedures. 

It is not clear, from a procurement-law perspective, how consequences will be enforced if accounting authorities themselves are involved in the noncompliance. For parties who do manage to identify irregularities, there are also no legal remedies available should they seek to challenge irregular decisions, apart from a constitutional or administrative review application, which, in many cases, is impractical and ineffective as it delays the delivery of goods and services.

The lack of a clear and robust legal framework, which sets national standards for procurement procedures in a single piece of legislation, is therefore an obstacle to a strong and well-functioning procurement system. 

The draft public procurement bill

Aware of the many problems facing the procurement landscape, the treasury published the draft public procurement bill in February 2020. The draft bill intends to regulate public procurement with a single regulatory framework that is binding on all organs of state. Although the move has been welcomed, several organisations made submissions on the draft bill noting that it not only fails to achieve its objectives, but also fails to meet globally recognised principles for effective public procurement. 

The draft bill makes key changes, such as restructuring the preferential procurement regime, establishing a public procurement regulator in the treasury to oversee all public procurement, establishing internal and external dispute-resolution mechanisms, and creating mechanisms for the cancellation of tender processes. 

A wide range of stakeholders, ranging from NGOs and research institutions to corporate entities, have identified inadequacies in the bill, including: 

  • A failure to resolve the overlaps and duplication in existing regulations;
  • A failure to provide robust, comprehensive, and protective provisions for public participation, oversight, transparency and accountability; 
  • A weakening of oversight powers and functions. Given that the regulator will be housed in the treasury, it is difficult to see how it can exercise its functions as the “procurement watchdog” independently and effectively; and
  • A lack of provisions for expedient and effective remedial action.

Commentators suggest that the bill must contain provisions that reflect international best practices for public procurement — which adequately addresses the problems with the legal framework as it currently stands.  

Sadly, two years after the bill was published for comment, civil servants are still drowning in a procurement framework morass that is adroitly exploited by some. Considering the costly procurement crisis we face, urgent action is needed. The bill in its current form would not ensure efficient and effective procurement. 

Although the treasury’s latest attempt at addressing this obstacle signals a step in the right direction, many stakeholders regard it as inadequate because of its failure to propose measures that ensure transparency, compliance and effective dispute resolution. 

Looking forward, the treasury must act swiftly to revise and table the bill, making sure that the submissions made in relation to it and the recommendations made in the Zondo report have been considered. In addition, the treasury must provide regular updates and timeframes on when the next draft of the bill will be published for further comments. 

Given the arduous law-making process, the treasury and parliament must prioritise the finalisation and tabling of the bill so that we can escape procurement purgatory and so that the constitutional rights of all citizens, including learners in public schools, can be realised.