South Africa’s public procurement laws have changed a lot over the years, aiming to make the system fairer, more transparent, and better at supporting the country’s economic goals. This article explains how these laws have developed, focusing on key regulations like the Preferential Procurement Policy FrLawamework Act, the 2017 and 2022 Procurement Regulations, the challenges faced, the recent 2024 Procurement Bill, and the important court case of Minister of Finance v Afribusiness NPC.
Preferential Procurement Policy Framework Act (PPPFA)
Section 217 of the South African Constitution provides that state owned entities must contract for good or services in a fair, equitable, transparent, competitive and cost-effective manner. In the South African Market, legislation such as the Preferential Procurement Policy Framework Act (“PPPFA”) and the then 2022 Preferential Regulations were put in place to give effect to Section 217 of the Constitution and to govern the implementation of state owed entities procurement policies which are implemented when tenders are awarded.
Enacted in 2000, PPPFA marked a pivotal shift in South African public procurement. Its primary objective was to promote socio-economic development by integrating principles of preferential procurement into the framework. The Act aimed to address historical injustices by giving preference to previously disadvantaged individuals and entities in the procurement process. It set the stage for future regulations by emphasizing the need to balance fairness, transparency, and socio-economic goals.
The PPPFA, more specifically introduced the preferential points system , in terms whereof tenders would be evaluated in accordance with two alternative scoring systems: for contracts under R 50 million, a maximum of 80 points could be allocated for the price and 20 points can be allocated to specific goals; for contracts over R 50 million, a maximum of 90 points could be allocated for the price and 10 points can be allocated to specific goals, resulting in a maximum of a 100 points. In terms of the PPPFA specific goals was defined as “contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender and disability and includes the implementation of programs of the Reconstruction and Development Programme” which program speaks on promoting development of communities and jobs in such communities.
2017 Procurement Regulations
The precursor to the 2022 Regulations was the 2017 Regulations which were introduced to provide more detailed guidance on implementing the PPPFA. These regulations introduced several key requirements such as:
- Pre-Qualification Criteria: These rules allowed for pre-qualification requirements, meaning businesses had to meet certain basic standards before they could be considered for contracts. This ensured only qualified businesses could participate, acting as a threshold to tender evaluation.
- B-BBEE status level contributor: the B-BBEE status level contributor requirement in terms of regulation 6 and 7 allocated maximum preference points reserved for specific goals to tenderers who were B-BBEE status level contributors. This application limited the opportunity for state owned entities to employ their discretion in choosing specific goals as envisioned in the PPPFA section 2(1) d.
Constitutional Court Case: Minister of Finance v Afribusiness NPC
The case of Minister of Finance v Afribusiness NPC (“Afribusiness”) led to landmark decisions that addressed the Minister of Finance’s scope of powers in promulgating the 2017 Regulations and the interpretation thereof. Particularly notable was the Supreme Court of Appeal’s resolve on the use of Pre-qualification criteria. The Supreme Court of Appeal found that the Minister of Finance had failed to act within his scope of powers in that the 2017 Regulations were inconsistent with the PPPFA and section 217 of the Constitution (“the framework”). It found that the framework does not permit pre-qualifying criteria, or thresholds, as conditions of tendering, in that such criteria had the effect of creating a three-step process which was not envisioned by the PPPFA or the Constitution, preliminarily eliminating tenderers prior to adjudication.
Disputes relating to the 2017 Regulations and Pre-qualification criteria would continue in the Western Cape High Court case of Bigen Africa Services (Pty) Ltd and Others v City of Cape Town and Others, in terms whereof it was determined that certain Pre-qualification criteria, more specifically requiring a local office as a pre-qualification criteria in a tender, had the effect of being biased in favour of bidders in the local area, and thus anti-competitive, because it automatically excluded potential bidders from outside it without considering any further criteria.
The final decision would be made in 2022 on appeal to the Con court in the case of Afribusiness, in terms whereof the minority and majority judgement would diverge on the interpretation of the Minister’s powers to promulgate the 2017 Regulations. Justice Mhlantla, in her minority judgment held that the Minister did not act beyond his scope of powers conferred on him as she believed that the Minister in promulgating the 2017 Regulations, achieved the objects of the PPPFA. The minority judgment emphasized the importance of aligning procurement policies with constitutional principles of equality and fairness. She argued that the application of preferential procurement policies must be closely scrutinized to ensure that they genuinely promote socio-economic equity and do not inadvertently perpetuate inequalities.
The second judgement being the majority decision penned by Justice Madlanga, disagreed with the minority judgement in that it held that the Minister acted outside of the scope of powers afforded to him, and as a result reserved any further interpretation on the 2017 Regulations. This judgement resulted in the suspension of the 2017 Regulations.
2022 Procurement Regulations
The above contention and suspension instigated the passing of the 2022 Procurement Regulations which was passed as an interim solution awaiting the updated Procurement policies. The 2022 Regulations were bare in nature, simply mirroring the PPPFA, in that its provisions mirrored the preferential points system and specific goals definition founded in the PPPFA, to the exclusion of Pre-qualification criteria, functionality, local content and subcontracting.
The 2022 Regulations made provision for the allocation of preferential points for specific goals, however unlike its precursor, there was no explicit reference to preference points being awarded based on B-BBEE level contributor only. Therefore, the interim scoring system relevant to specific goals had restored the discretion afforded to state owned entities when allocating preference points. This means that state-owned enterprises could continue allocating points for B-BBEE level contributor only – alternatively, they could now allocate points for other goals such as whether the tenderer has increased job creation locally or will employ more women or disabled people.
The above resulted in organs of state incorporating scoring systems which do not automatically award the maximum preference points for tenderer’s B-BBEE level only, but for various other goals such as the promotion of local area enterprises, wholly black owned businesses, targeted enterprise subcontracting and disabled owners. This new application, resulted in contention relating to specific goals, the most prominent cases being the 2023 and 2024 High Court applications of SMEC (Pty) Ltd v SANRAL and H&I Civil Building (Pty) Ltd and others v The City of Cape Town and others, wherein we see both applicants seek to review the state organ’s decision to implement specific goals which do not favour B-BBEE status level contributor only, arguing that such implementation is limiting to certain tenderers and does not place the necessary emphasis on B-BBEE.
The Procurement Bill 2024
It should be noted that the Courts have yet to finally hear the applications relating to the aforementioned cases, however their relevance seems to be fleeting as on 23 July 2024, President Ramaphosa assented to the long-awaited Procurement Bill (“the Bill”). The Procurement Bill represents the latest development in South Africa’s procurement landscape, as it consolidates and replaces PPPFA, all procurement regulations and policies into a cohesive framework. The Bill, to the awe of the public, has brought back many of the contended provisions such as Pre-qualification criteria, local content production and sub-contracting. It has also introduced a new regulatory body being the Public Procurement Office. Despite the Bill having been assented to, it has yet to come into effect, as it still awaits the Minister of Finance’s regulations.
Conclusion
South Africa’s public procurement laws have evolved to better balance fairness, efficiency, and economic development. From the PPPFA to the 2017 and 2022 regulations, and now the 2024 Procurement Bill, the changes show a commitment to improving the system. The court case also reminds us that procurement policies must always reflect constitutional values. As the country continues to grow and change, the laws will likely adapt to meet new challenges and opportunities.
Please email Katleho Leeuw at katleho@caf.co.za
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