Anti-poor Public Procurement Act violates Constitution – IRR

President Cyril Ramaphosa has just signed the Public Procurement Act into law, though the date at which it is to take effect has not yet been proclaimed. This new law incentivises corrupt rent-seeking in government spending in the economy of over R1 trillion annually.

It is important to understand what the law is, why it is unlawful, and what remedies are available.

Most importantly, the new law allows the government to impose “set-asides” on a case-by-case basis to ensure that only businesses designated within one group from a list are able to compete in a tender bidding process.

The list of possible groups includes, among others, “black people”, “black women”, “women”, “black people with disabilities”, “people with disabilities”, and Umkhonto we Sizwe “military veterans”, although the groups made explicit here are the ones that can also be limited “within” a particular municipality.

There will inevitably be cases where the “set-aside” is redundant because the best business for the job would have won the contract regardless of the new exclusive procurement regime.

For example, there are surely occasions in which the only MK military veteran-owned and -operated business in a particular municipality will be able to provide such essential goods as the best traffic signal controllers, staff laptops, power station replacement parts, or whatever the specific tender calls for, at the best possible price.

However, in every single case where the best value-for-money option is not within the specified “set-aside” group, then the best business for the job will not even be able to bid, and the government will pay more for less because of that exclusion.

Treasury official Mr Willie Mathebula called that specific extra cost a “premium”, and repeatedly made promises before Parliamentary committees that more such “premiums” will be paid thanks to the new law.

There are several legal flaws in the new law.

The Constitution requires that “legislation must…prescribe measures to ensure both transparency and expenditure control in each sphere of government”. In other words, all costs including the “premiums” referred to above, must be budgeted before payment is made, which is cost management, and reported after payment is made, which is transparency.

However, the “set-aside” regime blocks the procurement office from receiving the best value-for-money bid in all cases where it is effective, undermining transparency and expenditure control.

Second, the bill introduces an “unfunded mandate” by requiring provinces to do separate research about costs that go beyond what is currently required, without estimating the cost of this additional work as required by law.

The first two problems combine to create a practical dilemma: either the country’s thousands of procurement offices will not do the expensive and onerous costing work that is newly required, lessening the “unfunded mandate” problem by exacerbating the lack of transparency and cost management − or, procurement offices will do the new costing work, spending billions of rands that directly expose the new law’s egregious violation of the legal requirement that officials who table a bill must first think about what it will cost and include their estimate, however rough, in a memorandum for the public to consider as part of the democratic process.

Third, the bill intensifies the deviation from cost effectiveness, which is currently “capped” at “premiums” of 25%, in the terminology used by Mr Mathebula. This violates the constitutional requirement that all government procurement must take place in a “system” that “must” be “cost-effective”.

IRR Legal understands that the new law will not take effect until Minister of Finance Enoch Godongwana determines the proportion of contracts that must be “set-aside” into the “premium” exclusion system, known as “thresholds” in the new law.

In anticipation of this, all government departments can begin to remedy the situation by applying to Minister Godongwana’s office for exemption from the current “premium” system, accompanied by budgetary justifications for why maximising value for money must take precedence now, and in preparation for the extra unknown costs imposed by the incoming law.

IRR Legal will correspond with Minister Godongwana’s office to enquire as to the timeline before “thresholds” are gazetted, and with organs of state to enquire about their capacity and willingness to compromise on value for money for the sake of paying “premiums”.

Media contact: Gabriel Crouse, IRR Legal Executive Director Tel: 082 510 0360 Email: gabriel@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za