IRR Legal offers lifeline to 69 municipalities: cut procurement premiums to fix broken municipal finances

IRR Legal has reached out to all 69 financially distressed municipalities across South Africa that have recently had their national grant funding withheld by the National Treasury under Section 216(2) of the Constitution.

These distressed municipalities face corrective action due to severe fiscal distress and persistent non-compliance with financial management measures. However, making painful cuts could adversely affect service delivery.

To assist these local governments in navigating this constitutional funding freeze, IRR Legal is offering pro bono support services to help them implement immediate cost-cutting measures that will not harm service delivery whatsoever.

The solution is to stop paying BEE preference premiums as required by the Preferential Procurement Policy Framework Act (PPPFA), and to get maximum value for money in every tender instead.

The financial and legal mechanism

Under the current PPPFA, municipalities are legally obligated to pay higher costs for goods and services to meet “specific goals” that deviate from what the Zondo Report called “maximum value-for-money” in public procurement.

• The PPPFA's points system forces municipalities to accept bids that are up to 25% more expensive for contracts below R50 million.
• For contracts exceeding R50 million, municipalities are mandated to pay a premium of up to 11.1%.
• However, section 3(c) of the PPPFA empowers the Minister of Finance to exempt any organ of state from these provisions if it is "in the public interest".
• It is indisputably in the public interest for municipalities facing a total collapse of basic services and grant suspensions to procure goods at the absolute lowest cost, maximising the value of every rand spent.

The nexus between preference premiums and state capture

To support the municipalities' exemption applications, IRR Legal has provided a comprehensive briefing document detailing the established connection between BEE preference premiums and state capture. The document draws on findings from authoritative institutions, including the Zondo Commission, the Presidency, the International Monetary Fund IMF), and Harvard University’s Growth Lab.

Public demand for value-for-money

IRR Legal has also supplied municipalities with recent, independent polling data demonstrating massive public support for eliminating preference premiums in favour of cost-effective governance.

The practical how-to

IRR Legal has supplied a ready-to-send template to all 69 municipalities. All they have to do to request immediate exemption from paying preference premiums is attach the document to an email to the Minister of Finance and press send.

IRR Legal has also offered pro bono support to Municipal Managers, Chief Financial Officers, and Supply Chain Management departments to immediately gain exemption from paying preference premiums.

Every rand saved by procuring at true market value is a rand that can used to save a municipality. This is done through shoring up municipal balance sheets, restoring basic service delivery, and demonstrating the fiscal discipline required by the National Treasury to unlock withheld grants.

Media Contact: Gabriel David Crouse, Founding Executive Director, IRR Legal Tel: 082 510 0360 Email: gabriel@irrlegal.org.za