Substantially more stringent and complex, they open up new avenues for graft - and instead of easing up on 'transformation', National Treasury is doubling down on it.
National Treasury. File photo
The set of new public procurement regulations proposed by National Treasury has a lot to say about who can bid for public sector contracts but pays less heed to the costs, nor does it seem overly concerned about the potential for corruption.
This is not a trivial debate, given the scale of public procurement – reckoned to be around R931 billion in 2022 or 15% of GDP, according to a 2024 report by the Organisation for Economic Cooperation and Development (OECD). Those figures are certainly higher by now.
The Public Procurement Act was passed by parliament in 2024 in response to the Zondo Commission of Inquiry into Allegations of State Capture.
The Zondo Report called for more professionalism in public procurement and unified legislation for supply chain management.
It put the size of tainted state capture contracts at R57 billion, most of this related to Transnet and Eskom, though others put it above R500 billion.
Total spending for national and provincial government is expected to increase from R2.4 trillion in the 2025 fiscal year to R2.8 trillion by 2027. That’s not counting another R720 billion or so for municipalities by 2027, though not all of this is spent on procurement.
The scale of the problem is enormous, according to a new report by policy research group Centre for Development and Enterprise (CDE).
“Today, procurement is one of the deepest strategic weaknesses in the system of South African governance. All too frequently it becomes a site of inflated costs or corrupt extraction.”
Not everything about the new procurement rules should be tossed out, says the CDE. The proposed rules promise greater transparency, including a new procurement dashboard, and greater flexibility in engaging suppliers.
Public advocacy group Section27 welcomes the inclusion of a definition of ‘value for money’ as not just the cheapest price, but as the guidestone of intended procurement outcomes.
What’s value for one department may have longer term consequences elsewhere. For example, supplying ultra-processed foods at schools could lead to obesity later, placing hospitals and clinics under added strain.
New transformation goals brought into the picture …
The new regulations are intended to put flesh to the 2024 act, but in doing so they sneak in a few new transformation goals.
For example, new set-aside rules for some procurement categories must be 100% owned by members of designated groups.
It’s no longer good enough to be majority black-owned or BEE-compliant, which immediately excludes a huge number of businesses with white shareholders.
This will discourage black and white entrepreneurs from forming partnerships and incentivises fronting. The result will be companies that look good on paper but lack the skill or resources to execute on contracts.
Rather than easing up on that elusive goal of ‘transformation’, National Treasury is doubling down.
There are new prequalification and compulsory sub-contracting rules, which will almost certainly raise costs and add more paperwork for compliance-fatigued management.
For contracts exceeding R100 million, the winning contractor may have to subcontract at least 25% to designated businesses.
This puts subcontractors in the driving seat – which means more risk, for which suppliers will charge a premium.
Procurement determines whether hospitals have oxygen tanks, schools have text books or police have uniforms, but all too often these decisions are driven by who gets the contract.
The corruption starts there. Honest officials become obstacles and competent professionals threaten those of malign intent, says the CDE.
The proposed prequalification rules may require bidders to show that 40% of their previous procurement spending went to majority black-owned businesses, apparently overturning two decades of BEE practice. This should be abandoned by Treasury, says the CDE, as should the prequalification rules and compulsory sub-contracting.
Is Treasury addressing the key issue?
The 400-page OECD study into SA’s procurement system found “systemic signs of corruption and political interference”.
Like Zondo, it called for more professionalism, transparency and oversight. The legal and regulatory landscape was complex and fragmented, with no clear regime for non-price attributes, such as quality, while accounting officers have wide discretion in which firms to include in the Restricted Supplier List.
The regulations may solve the wrong procurement problem.
They aim to regulate which businesses can bid for contracts, but are less specific on deliverables, while leaving the door open for corruption at each stage of the procurement cycle – from bid preparation to specifications, short-listing and final award.
“Simplicity is one of the most powerful instruments available for reducing corruption,” says CDE executive director Ann Bernstein.
“It is often complexity – discretionary decision points, opaque processes and rules that are hard to interpret, administer and monitor – that creates the openings for corruption,” she says.
“While public comment on these provisions has been marked by some significant misunderstandings that exaggerate the regulations’ defects, even an accurate reading of the proposals reveals significant problems that are going to greatly complicate the process of procurement and which are also bound to raise costs for procuring entities.”
Scope for abuse
Section27 says socio-economic rights guaranteed in the Constitution of the Republic depend on procurement, with 84% of the population reliant on public health services, and 95% on public schools.
It welcomes the improved disclosure around procurement processes, but has concerns over the ability of procuring institutions to use non-disclosure clauses to withhold vital information from the public.
In other words, very much like the abuses around the Promotion of Access to Information Act (PAIA), where information can be deemed ‘confidential’ and withheld from the public.
The proposed new rules are substantially more stringent than the existing ones, opening new avenues for graft on top of an already flawed system.
That’s not the direction that Zondo or the OECD intended.
