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On 16 January 2023, the New Preferential Procurement Regulations (2022 Regulations) came into effect. The resulting scenario is the expansion of the aims of preferential procurement and reinforcing the idea that organs of state now have more discretion when it comes to implementing their own procurement policies.
Overview of preferential procurement in South Africa
When an organ of state in the national, provincial or local sector of government contracts for goods and services, South Africa’s Constitution requires that such must be conducted using a “fair, equitable, transparent, competitive and cost effective” system. Procurement policies that provide for particular categories of preference in respect of the allocation of contracts and the development or protection of those individuals that have been disadvantaged due to unfair discrimination may be implemented by organs of state.
Parliament has also prescribed a statutory framework for preferential procurement in terms of Section 217 of the Constitution, known as the Preferential Procurement Policy Framework Act, 2000 (“PPPFA”).
A preference points system is provided by the PPPFA. This effectively means that contracts below a prescribed value are evaluated on the basis that 20 out of 100 possible points should be assigned to “specific goals” and 80 points allotted to price. For those contracts above a prescribed value, 10 out of 100 possible points need to be allocated to “specific goals” and 90 points assigned to price.
“Specific goals” therefore encompass:
- Contracting with individuals or categories of individuals that have been previously disadvantaged in terms of unfair discrimination with regards to race, gender or disability.
- Implementing programmes in line with the Reconstruction and Development Programme.
Since the PPPFA came into effect numerous Preferential Procurement Regulations have been issued in respect of the PPPFA which include the Preferential Procurement Regulations, 2017 (“PPR 2017”).
State organs have greater choice under the 2022 Regulations
Where the PPR 2017 and the new 2022 Regulations differ is where it concerns the application of pre-qualification criteria. Under the PPR 2017 an organ of state could apply pre-qualification criteria “to advance certain designated groups”, including black people, women, persons with disabilities and small enterprises, whereas the 2022 Regulations no longer allow for the use of pre-qualification criteria.
Certain discretion for procuring institutions when allocating preference points is allowed under the 2022 Regulations. Hence, while the scoring system of 80/20 (for contracts up to ZAR50-million) and 90/10 (for contracts above ZAR50-million) still applies, the 2022 Regulations allow the procuring institution to decide on “the specific goal specified for the tender” (as opposed to only the B-BBEE contributor status level, as was the case under the PPR 2017). Only “specific goals” should encompass contracting with individuals who have been historically disadvantaged due to unfair discrimination, or the implementation of programmes in terms of the Reconstruction and Development Programme.
Notably, tenders for income-generating contracts that include concessions and the letting of government assets and property as well as tenders for the acquisition of goods or services, are covered under the 2022 Regulations. This reinforces the fact that contracts entered into for commercial gain as opposed to for the acquisition of goods or services by organs of state are also bound by public procurement rules.
2022 Regulations Exclusions
- There is, however, an important exclusion from the 2022 Regulations and this is in respect of content requirements. Yet, it is likely that local content will form part of the anticipated Public Procurement Bill which us currently in development by National Treasury.
- The awarding of contracts to tenderers who do not score the highest points and the permissible grounds for the cancellation of tenders are not regulated by the 2022 Regulations. These are scenarios that organs of state are presumed to tackle using their own procurement policies.
It is important to bear in mind that the absence of certain references to preference that is based on B-BBEE contributor status level and to local content in terms of the 2022 Regulations does not preclude organs of state from assigning preference points to B-BBEE or localisation in a tender process as “specific goals”. As such, it remains to be seen whether organs of state will persist in applying B-BBEE contributor status level as the primary consideration in preference point scoring, or whether other specific goals are applied, for example, job creation, local or regional presence, participation by women or disabled individuals, green procurement, employment equity or other such goals.
Business Optimization Training Institute will be holding a Conference on the Procurement Legislation changes on 12 and 13 July 2023 at the Mercure Hotel in Bedfordview, Johannesburg. If you would like to attend this important intervention, please call us on 011 882 8853 or send us an email to [email protected] to book your seat.
This Conference is particularly relevant to those Government Officials who are involved in Procurement as well as those individuals who pitch tenders.
Reference sources: Ensafrica.com