Treasury cracks whip on subcontracting regulations

Demands are being placed on contractors with provincial and local governments that they pay 30 percent of their contracts in cash in lieu of being subcontracted with 30 percent of the value of the contract as provided for in the preferential procurement regulations.

Treasury said in a statement on Tuesday that it had received complaints about this abuse of the regulations‚ which stipulate that 30 percent of public procurement contracts be subcontracted to designated groups.

It has called on provincial treasuries to ensure that organs of state in provincial and local government abide by the regulations and report any interruptions to public projects on the basis of the 30 percent subcontracting requirement to law enforcement agencies.

"It is alleged that some people are now demanding that they instead be paid in cash 30 percent of the value of each contract awarded in these provinces or municipalities. If their demands are not met‚ they threaten contractors‚ interrupt or stop the implementation of projects‚" noted Treasury.

"Such practices are not only illegal but defeat the government objective of transforming the South African economy through equal opportunities for all and the advancement of historically disadvantaged individuals and small‚ medium and micro -enterprises (SMMEs)."

Preferential procurement was intended by the government to drive transformation‚ including the empowerment of designated groups and SMMEs through subcontracting and prequalification.

The preferential procurement regulations stipulate that where feasible‚ organs of state must apply subcontracting conditions to contracts valued at more than R30-million. These conditions are that 30 percent of the value of the contract be subcontracted to designated groups‚ which include majority black-owned small and emerging enterprises‚ which can be run by women‚ youth‚ the disabled‚ rural enterprises‚ military veterans or cooperatives.

Public tenders have to specify whether they include prequalifying criteria‚ which are intended to advance designated groups. Those awarded a contract may only enter into a subcontracting arrangement with the approval of the organ of state.

Treasury noted in its statement that the demands for cash payments ran counter to Section 217 of the Constitution‚ which demands that when an organ of state in the national‚ provincial or local sphere of government procures goods and services‚ it must do so in accordance with a system that is fair‚ equitable‚ transparent‚ competitive and cost-effective.

Treasury also said that some organs of state were using procurement preferences that were not provided for in the current regulatory framework. These included the ring-fencing of procurement for service providers and suppliers who lived within certain geographical areas.

"State funds spent on tenders awarded in this manner will be classified as irregular expenditure since they do not comply with the supply chain management and preferential procurement provisions and prescripts‚" warned Treasury.