The cost and quality of state procurement is one of the biggest problems facing South Africa. The procurement system is expensive, time-consuming and overly complex. It creates the conditions for the extraordinary web of corruption we see all around us.
All this is about to get worse. The recently published draft procurement regulations not only fail to address these problems but intensify them. This should be setting off alarm bells all over the country.
The regulations set aside any procurement below R20m for suppliers that are 100% black-owned. This applies to all public entities including all spheres of government, state-owned companies, hospitals and educational institutions.
While R20m may sound like a small number to the drafters of this scheme, it is a huge sum and must cover vast swathes of the goods and services supplied to public entities on a daily basis.
Think about the implications. Every supplier of every service must be 100% black-owned: architects, advocates, engineers, maintenance contractors, electrical contractors, suppliers of spare parts for power stations, pharmaceutical companies, water treatment companies. This will restrict the pool of eligible suppliers enormously by preventing many competent and potentially cheaper suppliers from bidding.
Did the drafters consider the supplier environment for all these goods and services? Are there sufficient 100% black-owned suppliers to create a competitive pool? If not, the state will either have to procure from suppliers that do not meet the technical requirements, or from suppliers who simply subcontract.
Imagine every procurement decision being held up while officials try to determine the past procurement behaviour of every prospective suppler. Imagine the cost of doing this for every procurement decision of every public institution
It will expand the vast army of conduit suppliers — companies that win tenders because they are black-owned (or connected) and then subcontract to others, adding a margin. This not only drives up the price but makes it difficult to deal with substandard supply. If you procure equipment that does not work it is difficult to demand performance if your supplier is a middleman.
From R20m to R100m the draft regulations require prospective suppliers to prove 40% of their own procurement has gone to 51% black-owned companies over the past three years. For any medium or large company this is an administrative nightmare and near impossible to achieve. It is also enormously time-consuming for the state to check.
Imagine every procurement decision being held up while officials try to determine the past procurement behaviour of every prospective suppler. Imagine the cost of doing this for every procurement decision of every public institution. In practice the only companies that will be able to comply will be small companies and start ups that have no procurement history. Cue the army of conduit suppliers.
The regulations are also highly complex, with 120 pages of rules that will trip up the most diligent and clear-minded of state officials. This complexity will slow things further and create numerous grounds for legal challenge. Public institutions will find themselves in legal battles over the most basic supply decisions.
The regulations also upend the existing system of BEE. Companies already spend large amounts of time and money to qualify for BEE certificates that measure them on five outcomes — ownership, employment equity, skills development, supplier & enterprise development and social development. But under these regulations only ownership matters.
The state already pays a huge premium on what if buys, despite its enormous buying power. It already procures inefficiently, with even small procurement decisions taking many months. It already creates fertile conditions for corruption. It already pays for sub-standard work.
Restricting the potential pool of suppliers and imposing such complex rules will intensify these trends rather than addressing them. The empowerment of black suppliers must be balanced with the need for an efficient and effective state.
• Bethlehem is an economic development specialist and partner at Genesis Analytics. She has worked in the forestry, renewable energy, housing and property sectors and in local and national government. She writes in her personal capacity.
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