DRAFT PREFERENTIAL PROCUREMENT REGULATIONS

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DRAFT PREFERENTIAL PROCUREMENT REGULATIONS

• NATIONAL TREASURY
• Henry Malinga

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Content

• Purpose
• Background
• Legislative Environment
• Current Preferential Procurement System
• Alignment of PPPFA with BBBEEA
• Way forward

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• PURPOSE

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Purpose
To provide an overview of the draft Preferential
Procurement Regulations (Alignment of the
Preferential Procurement with the aims of the
Broad Based Black Empowerment Act and its Codes
of Good Practice)
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• BACKGROUND

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Background

• On 10 September 2003, government adopted of a
  Policy Document, titled Policy to Guide
  Uniformity in Procurement Reform Processes in
  Government
• On 05 December 2003 the Framework for Supply
  Chain Management was published in the Government
  Gazette as part of Treasury Regulations in terms
  of section 76 (4) (c).
• On 5 March 2005 the Framework for Supply Chain
  Management was included into the Treasury
  Regulations as Chapter 16A.
• On 09 January 2004 the Broad Based Black Economic
  Empowerment Act was promulgated.

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• LEGISLATIVE ENVIRONMENT

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Statutory Framework for Public Sector Procurement
Constitution PFMA / MFMA Acts PPPF Act and
Preferential Procurement Regulations B-BBEE
Act Other prescripts
Standard for Uniformity
National Treasury Best practice guidelines
CODES OF CONDUCT FOR SCM PRACTICTIONERS AND BID
COMMITTEE MEMBERS
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Procurement Reform

• The PFMA and MFMA gives effect to the
  Constitutional Requirements in order to bring
  about sound financial management by
• Replacing the outdated procurement and
  provisioning processes with uniform simplified
  procurement procedures
• Establishing supportive SCM structures.
• Promoting consistency in policy application.
• Devolving accountability and full powers to
  accounting officers/authorities. Consistent with
  the aims of the PFMA and MFMA that accountability
  and responsibility for all expenditure vest with
  accounting officers/authorities

The above initiatives resulted in the
introduction of the INTEGRATED SUPPLY CHAIN
MANAGEMENT function in government.
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Legislative Environment

• Section 217(I) of The Constitution provides the
  basis for procurement by determining that
• When an organ of state in the national,
  provincial or local sphere of government, or any
  other institution identified in national
  legislation, contracts for goods and services, it
  must do so in accordance with a system which is
  fair, equitable, transparent, competitive and
  cost-effective.
• The PFMA and MFMA with their respective
  regulations give effect to this prescript.

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Legislative Environment
Section 217(I) of The Constitution further
confers an obligation for national legislation
to prescribe a framework providing for
preferential procurement to address the social
and economic imbalances of the past. The
Preferential Procurement Policy Framework Act
(PPPFA) of 2000 and its accompanying Regulations
were promulgated to achieve these goals. (This
Act incorporated the 80/20 and 90/10 preference
point systems.)
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• Current Preferential Procurement System

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Preference Points System

• The PPPFA and its associated Regulations
  incorporate the 90/10 and 80/20 preference
  point systems
• 10 or 20 points make provision for the promotion
  of equity ownership by HDIs or the specific RDP
  goals
• Allows the state to pay a maximum of 11.1 and
  25 premiums respectively.
• A maximum of 90 and 80 points represents price.
• Contracts awarded to the bidder who scores the
  highest total points (points for price added to
  points for RDP goals)

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90 / 10 Preference Points System

• Compulsory for Procurement gt R500 000
• Maximum of 90 Points for Price
• Maximum of 10 Points for promotion of HDIs and /
  or Specific RDP goals

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80 / 20 Preference Points System

• Compulsory for procurement gt R30 000 - R500 000
• May be used for ltR30 000 (database of suppliers
  for price quotations)
• Maximum of 80 Points for Price
• Maximum of 20 Points for promotion of HDIs and /
  or specific RDP goals.

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Preference Points System

• Ambiguity was identified between PPPFA and BBBEEA
  
• thus alignment of the two legislations was
  necessary.
• Some of the identified shortcomings were but not
  limited to
• Inconsistency in the policy application
• The definition of HDI was too broad leading to
  huge fronting
• BBBEE and PPPFA were out of sync
• A work group was established between National
  Treasury and the BEE unit of the DTI to align the
  Preferential Procurement Regulations with the
  BBBEE Act, i.e. Preferential Procurement
  Regulations to be revised.

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• ALIGNMENT OF PPPFA WITH
• BBBEE ACT

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Long term legislative process for repeal PPPFA

• Repeal PPPF Act
• New Treasury Regulations would incorporate SCM
  Regulatory Framework (including preferential
  procurement)
• The same process will be applied for the
  municipalities

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Immediate Alignment Initiatives

• For immediate, short term retain the PPPFA and
  amend Preferential Procurement Regulations to be
  brought in line with the aims of the B-BBEE Act
  using the balance scorecard methodology as
  prescribed by the B-BBEE Act and its Codes of
  Good Practice
• Use definitions contained in the B-BBEE Act and
  Codes of practice eg. Black people vis a vis
  HDIs
• Use Verification Certificates issued in terms
  of the
• B-BBEE Scorecard to calculate points out of 10
  or 20

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B-BBEE Codes of Good Practice Balance Scorecard

• Elements of the B-BBEE Codes of Good Practice
  Balance Scorecard that would be used to
  determine B-BBEE level of contribution are as
  follows
• Black ownership
• Management control
• Employment Equity
• Skills development
• Preferential procurement from BEE
  suppliers
• Enterprise development
• Socio-economic development
• These elements include black ownership and the
  RDP goals

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Draft Preferential Procurement Regulations

• Points to be awarded to a bidder based on his or
  her B-BBEE status level
• Eg. Level 1 contributor would receive 20 points
  whilst level 4 contributor would receive 12
  points out of a maximum of 20 points.
• Level 1 contributor would receive 10 points
  whilst level 4 contributor would receive 5 points
  out of a maximum of 10 points.
• Calculation of points to be based on the B-BBEE
  ratings of a bidder as follows

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Draft Preferential Procurement Regulations
Calculation of points for B-BBEE RATINGS
B-BBEE Status Level of Contributor Number of points (90/10 system) Number of points (80/20 system)
1 10 20
2 9 18
3 8 16
4 5 12
5 4 8
6 3 6
7 2 4
8 1 2
Non-compliant contributor 0 0
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Draft Preferential Procurement Regulations

• Threshold values
• 80/20 preference points system
• Compulsory for procurement
• gt R30 000 R1m
• 90/10 preference points system
• Compulsory for Procurement
• gt R1m

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Draft Preferential Procurement Regulations

• Exempted Micro enterprises (EME)
• (Entities with total revenue of less than R5
  million)
• automatic level 4 recognition.

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Draft Preferential Procurement Regulations

• Verification
• EME need to prove revenue status.
• Non-EMEs to submit B-BBEE verification
  certificate obtained from Verification Agencies
  accredited by SANAS.
• Certificates issued by non-accredited
  Verification Agencies prior to 9 April 2009 will
  only be valid for 12 months from date of issue.

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Draft Preferential Procurement Regulations

• Remedies to be made available for false B-BBEE
  claims etc.
• Enterprise awarded a contract may not
  sub-contract more than 25 of the value of the
  contract to a person who does not have equal or
  higher B-BEE status level.
• Preferential Procurement Regulations will be
  extended to all organs of state for uniformity
  purposes

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• Way Forward

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• Draft Revised Regulations has been published in
  National Government Gazette and all Provincial
  Gazettes for public comments Closing Date 14
  September 2009
• Comments will be evaluated and incorporated in
  consultation with the DTI Legally refined
• Minister of Finance will formally promulgate
  Regulations
• Roll-Out will be properly communicated to
  government institutions (including training,
  information sessions and workshops)
• Treasury would monitor policy outcomes
  closely to influence national policy
• Public sector required to monitor own
  outcomes to influence own policy

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• Comments must be submitted in writing for
  attention
• Mr. HML Malinga or Mr. Jan Breytenbach
• The Director-General
• National Treasury
• Private bag X115
• PRETORIA, 0001 or
• faxed to 012-3155355 or 012-3155343 or
• emailhenry.malinga_at_treasury.gov.za or
  jan.breytenbach_at_treasury.gov.za respectively

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Discussion