Treasury berates abuse of Preferential Procurement Regulations

Tuesday, August 7, 2018

National Treasury on Tuesday condemned the abuse of Preferential Procurement Regulations.

This as Treasury -- which is responsible for managing South Africa's national government finances -- received complaints about the abuse in certain provinces and municipalities of the requirement that 30% of public procurement contracts be subcontracted to designated groups, as provided for in the Preferential Procurement Regulations, 2017.

“It is alleged that some people are now demanding that they, instead, be paid in cash 30% 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,” it said.

Treasury warned that such practices were not only illegal but that these acts defeat government objectives of transforming the South African economy through equal opportunities for all. This also includes the advancement of historically disadvantaged individuals and small, medium and micro enterprises (SMMEs).

“National Treasury calls on provincial treasuries to ensure that organs of State in provincial and local government abide by the Preferential Procurement Regulations and that any interruptions to public projects on the basis of the 30% subcontracting requirement are reported to law enforcement agencies.”

Section 217 of the Constitution 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.

“Demanding that one be paid in cash 30% of the value of every contract runs counter to this constitutional requirement,” said Treasury, stressing that government has determined that public procurement can help to drive transformation.

Transformation, Treasury said, includes the empowerment of designated groups and SMMEs through subcontracting and prequalification for preferential procurement.

Public procurement can also be used to promote industrial development. These public policy objectives, it stressed, must be achieved in accordance with Section 217 of the Constitution.

It added that it has also noted that some organs of state are using procurement preferences that are not provided for in the current regulatory framework. These include the ring-fencing of procurement for service providers and suppliers who live 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,” it said.

Revision of regulations

The regulations were initially promulgated in 2001 and revised in 2011, making it the second revision since the initial promulgation.

The revised regulations are an outcome of social dialogue on the New Growth Path (NGP), wherein government and social partners signed a Local Procurement Accord in October 2011. The revised regulations are also aligned to the 2015 State of the Nation Address, which stated that government will set-aside 30% of appropriate categories of State procurement for purchasing from SMMEs, co-operatives as well as township and rural enterprises.

The regulations can be found on page 20 of the January 2017 Government Gazette using this link: –