Department of Defence

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Department of Defence REPUBLIC OF SOUTH AFRICA
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The Procurement Process

• Presentation to the Portfolio Committee on
  Defence
• 08 October 2009

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Contents

• Introduction
• Procurement Process
• Procurement System
• Anti-corruption and Transparency

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INTRODUCTION
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Aim

• To orientate the Members of the PCD to the
  Procurement process within the Department of
  Defence

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Definitions

• Authorising entity A board or committee
  established to monitor compliance to procedures
  and to authorise bid submissions.
• Delegan a person or entity who has powers
  delegated upon them.
• JIT Just-in-time concept of rapid deliveries
  and inventory reductions.
• Material Value Chain the process, system and
  infrastructure pertaining to movement and
  handling of material from requisition to disposal

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DefinitionsCont.

• Procurement entity DoD establishment whose
  primary function is to procure or sell goods /
  services
• SCM supply chain management
• TQM total quality management concept of
  continuous improvement with emphasis on quality
  throughout the supply chain
• Transversal contracts centrally-managed
  contracts applicable to more than one government
  department.

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Scope

• The content of this presentation only applies to
  the GDA or FMS folio 01 procurement
  transactions, i.e. two thirds of the DOD budget.

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PROCUREMENT PROCESS
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Procurement Objectives

• To support the Material Value Chain in
  accomplishing optimal materiel readiness
• To ensure delivery of cost-effective quality
  services to services / divisions through good
  procurement practices
• To align procurement systems and processes with
  DoD Strategic Objectives
• To ensure compliance of the procurement execution
  process with the GRC framework
• To develop partnership arrangements with
  suppliers, and other procuring organisations and
  explore opportunities for SC collaboration
• To promote the principles of BBBEE, industry
  development and environmental sustainability

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Procurement Prescripts

• RSA Constitution Sect. 217
• Execute Procurement Function through a system
  that is fair, competitive, transparent, equitable
  and cost-effective.
• PFMA Sect 38(1)(a)(iii)
• Have an appropriate procurement system which is
  fair, competitive, transparent, equitable and
  cost-effective.

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Procurement Prescripts

• PPPF Act 5 of 2000
• National Treasury SCM Practice Notes
• DODI No Acq/2/99/Edition 2
• JDP No Acq/00003/04/Edition 1
• Secretary for Defense Delegations
• BBBEE Act

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Procurement Process Flow
Proc Unit/Centre
Proc Committees
End User
Depot/Unit
Finance
Initiate reqs Draw Specs Budget
Verify Req Specs Draw up PQ/Bid Docs
Advertise
Receive Goods Print Receipt Voucher (Quality chec
k)
Verify Bid doc Invoices Receipt Voucher
Evaluation Acceptance Approval
Receive PQ/Bids
Capture PQ/Bids
Technical Evaluation acceptance
PQ/Bid evaluation Recommendation
Make payment
Request FA
Approve FA
LOA/Order
Process Payt Docs
Suppliers
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Procurement Execution

• Level 3
• 2x Procurement Service Centres PSCs
• Thaba Tshwane and Simons Town
• SAMHS Procurement Unit Medical specific
• Procure at a Corporate Level central
• Requirements come from Formations and/or PSMs
• Purchase through contracts, bids and / or price
  quotations

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Procurement Execution

• Level 4
• Regional Procurement Sections
• SA Army 15
• SAAF 10
• SA Navy 2
• SAMHS 1
• J Ops 2
• DHQ Unit 1
• Regional requirements FSEs
• Purchase through contracts or price quotes

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Procurement Categories

• Procurement transactions fall within the
  following categories
• Petty Cash- R5,000-00
• Price Quotes- ltR500,000-00
• Bids- gtR500,000-00
• Contract item- Any Value

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Sourcing Process

• Price quotations - fwd docs to selected
  suppliers. Suppliers chosen (rotation) from a
  database
• Bids - advertised in government tender bulletin,
  all suppliers have access to this
• All PQs and bids have closing dates and times.
• Received, evaluated administratively
  technically, ranked for acceptance and
  recommended to the relevant committee for
  approval

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Authorising Entities
NAME ABB PROC FIN THRESHOLD
Regional Commercial Procurement Committee RCPC R1,000,000-00
Corporate Commercial Procurement Sub-committee CCPSC R5,000,000-00
Corporate Commercial Procurement Committee CCPC R10,000,000-00
Departmental Commercial Procurement Board DCPB Unlimited
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Payment Procedure

• Proc process ends when supplier is paid in full
• Rule (National Treasury prescribed) - payment 30
  days after receipt of invoice
• Advance payments to suppliers is not done unless
  agreed to as part of the contract conditions, and
  approved by CFO
• FASC responsible for finalising supplier
  payments. PSCs only deliver the payment packs

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Payment Documents

• For FASC to process payment, ff documents are
  required
• Delivery note
• Invoice
• Receipt voucher (accounting)
• Order / contract
• Completion certificate (services/repairs)

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Alternative Service Delivery

• A mix of flexible delivery programmes, activities
  and mechanisms that can be strategically used to
  achieve service delivery objectives by
  outsourcing or PPPs
• Legislated by
• - PFMA
• - Treasury Regulation 16 (PPPs)
• - DOD Policy - DODI/00003/2000
• DOD Defence Review, April 1998 stated that all
  non-core functions must be considered for
  outsourcing, the DOD must focus on its core
  business

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Types of Procurement Transactions
Transversal Contracts Common Products / Services Division-Specific Services
Control and Management National Treasury / SITA / DPSA Central Procurement via mid-term contracts Central Procurement via tender process
Co-ordination and Admin Corporate Procurement Log Div Corporate Procurement Log Div Corporate Procurement Log Div
Execution Services / Divisions Services / Divisions Services / Divisions
Monitoring Compliance Materiel GRC Materiel GRC Material GRC
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PROCUREMENT SYSTEM
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System Design Principles

• Combining the principles of JIT, TQM and SCM
• Responsible Procurement Officials shall be of the
  rank of SO1/Assist.Director/Lt Colonel/Cdr
  upwards
• Separate oversight function from the
  execution function.
• System must allow pro-active monitoring
• Centralise control, and localise execution

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Procurement Delegans

• SECDEF by law
• CSANDF by SECDEF
• Authorising Entities by SECDEF
• Senior Proc Officials by SECDEF / CSANDF
• Proc Officials by SECDEF / CSANDF

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Financial Delegans

• SECDEF by law
• CSANDF by SECDEF
• Div / Serv. Chiefs by SECDEF / CSANDF
• Senior Personnel by SECDEF / CSANDF

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Procurement Structures Execution
Procurement offices / sections at units

• Day-to-day procurement
• Procurement officials coordinated
• One for each service / division

Procurement Unit

• Supporting Procurement Units
• Handling central procurement activities
• Handling tender processes
• 3 of them
• Managed by senior procurement officials

Procurement Centre

• Supporting procurement centres
• A directorate within Log Division
• Central control of procurement strategy
• Issue directives and execution frameworks to the
  lower structures

Corporate Procurement
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Procurement Structures Oversight

• Regional Proc Committee

• Corporate Commercial Proc Sub-Committee

• Corporate Commercial Proc Committee

Departmental Commercial Proc Board
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The New Procurement Framework
Services / Divisions Financial Delegations
CSANDF Procurement Delegation - Prerogative
Procurement Delegations
Procurement Unit 1 SA Army
Procurement Centre Central
Procurement Delegations
Procurement Unit 2 SAAF
Corporate Procurement SANDF Log Div
Procurement Unit 3 SA Navy
Procurement Centre Simons Town
Delivery of Goods/services
Procurement Unit 4 J Ops
Procurement Unit 5 SAMHS
Procurement Centre Waterkloof
Procurement Unit 6 DHQ
Compliance To Gov. Framework
GRC Support
GRC Support
Regional Procurement Committee
Corporate Commercial Procom
DCPB
Procurement Delegations
Procurement Delegations
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Exercising Procurement Delegation CSANDF

• CSANDF shall exercise his Procurement Delegation
  within the Authorising Entities
• However CSANDF may use his procurement delegation
  outside the normal procurement process in cases
  of emergency as defined in JDP ACQ 0003/2004
• Provided a condonment is prepared and submitted
  to the authorising entity within 14 days.

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CORRUPTION PREVENTION / CONTROL
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Prevention / Control Mechanisms

• Submission of needs by DOD end-users. All
  procurement requests are scrutinized by the DOD
  Corporate Procurement Centres prior to inviting
  tenders to ensure that specifications/contracts
  are not drawn up to favour particular suppliers.
• Segregation of duties. All persons involved in
  the procurement process/cycle perform a single
  procurement task only i.e. person inviting tender
  is thereafter not involved in either evaluating,
  recommending or serving on approval
  committees/boards to award the tender.
• Invitation of suppliers to tender for DOD work.
  As prescribed by National Treasury, the DOD
  utilises an electronic database (Proquote) which
  chooses suppliers by a rotation system per
  commodity category. DOD also advertises in the
  Government Tender Bulletin.
• Recommendation to Award Tenders. Entire
  procurement process is electronic on E-Proqure.
  (Capturing of PPPFA points).

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Prevention / Control Mechanisms

• Approval of Tenders. Not vested in any
  individual in the DOD. Only authorised
  constituted committees and boards approve awards.
  Members serving must also declare their
  interests regarding awards under consideration.
• Effective Procurement Governance. Achieved
  through proactive monitoring by GRC to ensure
  compliance of procurement policies and
  procedures.
• GRC also retains Chairmanship of the procurement
  Committees and Boards that award tenders.
• GRC provides specialist advice and guidance to
  all DOD entities executing procurement.
• Procurement Training and Corruption Awareness.
  DOD procurement officials are regularly exposed
  by attending workshops, seminars, formal DOD
  courses, etc.

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Prevention / Control Mechanisms

• Interaction with National Treasury. DOD
  regularly engages NT for clarification of
  specific procurement issues. NT also promulgates
  SCM Practice Notes that regulate procurement and
  the DOD must implement same.
• Procurement Deviations. Are only approved by the
  Accounting Officer and must be reported to NT and
  AG.
• Procurement Delegations. Only issued by the
  Accounting Officer or CSANDF sub-delegations
  iaw PFMA. No DOD official is authorised to
  execute procurement without a delegation from
  either SecDef or CSANDF.
• Compliance to Legislation. DOD confirms strict
  compliance to all procurement prescripts as a
  measure to prevent corruption.

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Challenges within Procurement

• Declaration of Interest. No legislation that
  prevents DOD officials from tendering for DOD
  work whilst in the employ of the DOD. Members
  need to only declare to higher authority that
  they own a business.
• Segregation of Duties. Enforcement is
  problematic due to personnel shortages.
• Electronic Procurement System Downtimes. Can
  result in specific suppliers being asked by
  procurement personnel to tender.

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THE END