Innovations in South African public

service procurement policy: 1999–2005

EM VAN DER WALT

INNOVATIONS IN SOUTH AFRICAN PUBLIC SERVICE PROCUREMENT
POLICY: 1999–2005

by

ELIZABETH MAGDALENA VAN DER WALT

submitted in accordance with the requirements

for the degree of

MASTER OF ADMINISTRATION

in the subject

PUBLIC ADMINISTRATION

at the

UNIVERSITY OF SOUTH AFRICA

SUPERVISOR: PROFESSOR J C PAUW

CO-SUPERVISOR: PROFESSOR E C STRöH

JANUARY 2012

ii
 DISSERTATION DEDICATION

This dissertation is dedicated to Alta and my son Leehan for their support,
patience and motivation that made the completion of this research possible.
I also want to express my sincere gratitude to professor Pauw for his
guidance and rewarding discussions that accompanied this project.

One today is worth two tomorrows; what I am to be, I am now becoming.

Benjamin Franklin

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 DECLARATION

Student number: 33402132

I declare that Innovations in South African public service procurement

policy: 1999–2005 is my own work and that all the resources that I have
used or quoted have been indicated and acknowledged by means of
complete references.

............................... ....................
SIGNATURE DATE
(MRS E M VAN DER WALT)

iv
 SUMMARY

This dissertation has shown that public procurement regulation takes place
through regulatory documents that mainly underwent a name change and
that the only changes are found in the reporting framework. The South
African government identified public procurement as an active instrument to
achieve social and economic goals. To provide substance to this realisation,
public procurement was taken up in the Constitution of the Republic of
South Africa 1996. The constitution prescribes a procurement system that is
fair, equitable, transparent, competitive and cost-effective.

KEY TERMS

Fair, equitable, transparent, competitive, cost-effective, supply chain, supply

chain management, demand management, acquisition management, logistic
management, risk management and supply chain performance
management.

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 GLOSSARY

The following acronyms are used in this dissertation:

ABEs AFFIRMATIVE BUSINESS ENTERPRISES

AusAID AUSTRALIAN AGENCY FOR INTERNATIONAL
DEVELOPMENT
BAS BASIC ACCOUNTING SYSTEM
B-BBEEA BROAD-BASED BLACK ECONOMIC EMPOWERMENT
ACT
BEE BLACK ECONOMIC EMPOWERMENT
CIDB CONSTRUCTION INDUSTRY DEVELOPMENT BOARD
CODESA CONVENTION FOR A DEMOCRATIC SOUTH AFRICA
CPAR JOINT COUNTRY PERFORMANCE ASSESSMENT
REVIEW
GCC GENERAL CONDITIONS OF CONTRACT
GDP GROSS DOMESTIC PRODUCT
HDI HISTORICAL DISADVANTAGED INDIVIDUALS
IFRSs INTERNATIONAL FINANCIAL REPORTING
STANDARDS
LOGIS LOGISTICAL INFORMATION SYSTEM
PAJA PROMOTION OF ADMINISTRATIVE JUSTICE ACT
PDI PREVIOUSLY DISADVANTAGED INDIVIDUALS
PFMA PUBLIC FINANCE MANAGEMENT ACT
PPP PUBLIC PRIVATE PARTNERSHIP
PPPFA PREFRENTIAL PROCUREMENT POLICY FRAMEWORK
ACT
PPR PREFERENTIAL PROCUREMENT REGULATIONS
RDP RECONSTRUCTION AND DEVELOPMENT
PROGRAMME
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SACOB SOUTH AFRICAN CHAMBER OF BUSINESS
SCC SPECIAL CONDITIONS OF CONTRACT
SCM SUPPLY CHAIN MANAGEMENT
SMME SMALL, MEDIUM AND MICRO ENTERPRISES
ST36 GENERAL CONDITIONS AND PROCEDURES
ST37 USER MANUAL: DIRECTIVES TO DEPARTMENTS IN
RESPECT OF PROCUREMENT

Note about reference style

In cases where the source did not provide pagination for preliminary pages
the reader is directed by words such as “introduction page” and “preface”.

vii
TABLE OF CONTENTS

CHAPTER 1

GENERAL INTRODUCTION ............................................................................................ 1

1.1 Introduction................................................................................................... 1

TABLE 1: PRE- AND POST-PFMA ERA ................................................................................. 3

1.2 Background to the study ........................................................................................ 5

1.3 Motivation for this study ......................................................................................... 9

1.4 Research question................................................................................................10

1.5 Objectives of the study .........................................................................................10

1.6 Method of the study ..............................................................................................11

1.7 Demarcation of the study......................................................................................12

1.8 Terminology..........................................................................................................13

1.8.1 Accounting officer .................................................................................................13

1.8.2 Effective................................................................................................................13

1.8.3 Efficient.................................................................................................................13

1.8.4 Equitable ..............................................................................................................13

1.8.5 Fair .......................................................................................................................14

1.8.6 Institution ..............................................................................................................14

1.8.7 Public accountability .............................................................................................14

1.8.8 Public policy .........................................................................................................14

1.8.9 Preferential procurement ......................................................................................14

1.8.10 Procurement .........................................................................................................15

1.8.11 Supply chain .........................................................................................................15

1.8.12 Supply chain management ...................................................................................15

1.8.13 Value for money ...................................................................................................15

1.8.14 Regulations ..........................................................................................................16

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1.9 Overview of chapters ............................................................................................16

1.10 Conclusion...........................................................................................................17

CHAPTER 2

CONCEPTUALISATION OF PROCUREMENT AND SUPPLY CHAIN MANAGEMENT.18

2.1 Introduction...........................................................................................................18

2.2 Ideas on procurement...........................................................................................18

2.2.1 Methods of government procurement ...................................................................20

2.3 Context of procurement ........................................................................................22

2.3.1 Public procurement and the economy...................................................................23

2.3.2 Public procurement as a policy tool ......................................................................24

2.3.3 Public procurement as a political policy tool..........................................................24

2.3.4 Public procurement and technology......................................................................26

2.3.5 The role of government procurement within the socio-economic environment ......26

2.4 Clients of procurement..........................................................................................27

2.4.1 Internal clients ......................................................................................................28

2.4.2 External clients .....................................................................................................28

2.5 Theory of supply chain management ....................................................................28

2.6 Concepts of supply chain and supply chain management.....................................29

2.7 South African public sector supply chain management .........................................30

2.7.1 Demand management ..........................................................................................30

2.7.2 Acquisition management ......................................................................................31

2.7.3 Logistics management..........................................................................................31

2.7.4 Risk management.................................................................................................31

2.7.5 Disposal management ..........................................................................................32

2.7.6 Supply chain review..............................................................................................32

2.8 Conclusion............................................................................................................32

CHAPTER 3

LITERATURE SURVEY...................................................................................................34

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3.1 Introduction...........................................................................................................34

3.2 Literature study.....................................................................................................34

TABLE 2: LITERATURE STUDY TAXONOMY ...........................................................................35

3.2.1 Political approach .................................................................................................35

3.2.2 Legal approach.....................................................................................................38

3.2.3 Procedural approach ............................................................................................42

3.2.4 South African government research......................................................................44

3.3 Conclusion............................................................................................................50

CHAPTER 4

REGULATION OF PUBLIC PROCUREMENT IN SOUTH AFRICA ................................52

4.1 Introduction...........................................................................................................52

4.2 South Africa’s procurement development .............................................................52

4.2.1 Interim Constitution...............................................................................................53

4.2.2 The State Tender Board .......................................................................................54

4.2.3 State Tender Board Regulations, 1 July 1988.......................................................54

4.3 The Constitution of the Republic of South Africa, 1996 .........................................55

4.3.1 Fair .......................................................................................................................57

4.3.2 Equitable ..............................................................................................................58

4.3.3 Transparent ..........................................................................................................60

4.3.4 Competitive ..........................................................................................................61

4.3.5 Cost-effective........................................................................................................62

4.4 Regulations in terms of the Public Finance Management Act 1 of 1999:

Framework for Supply Chain Management...........................................................63

4.5 Preferential Procurement Policy Framework Act 5 of 2000 ...................................64

4.6 Broad-Based Black Economic Empowerment Act 53 of 2003 ...............................67

4.7 Conclusion............................................................................................................68

CHAPTER 5

A CRITICAL COMPARISON OF THE TWO REGIMES AT THE LEVEL OF SUBSIDIARY

PROVISIONS ..................................................................................................................69

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5.1 Introduction...........................................................................................................69

5.2 Overview of the procurement prescripts................................................................69

5.2.1 State Tender Board General Conditions and Procedures (ST36)..........................70

5.2.2 State Tender Board User Manual: Directives to Departments in respect of

Procurement (ST37) .............................................................................................70

5.2.3 General and special conditions of contract ...........................................................70

5.2.4 Supply chain management – a guide for accounting officers/authorities ...............71

5.3 Comparison of procurement in terms of pre- and post-PFMA system ...................71

5.4 Conclusion............................................................................................................91

CHAPTER 6

CONCLUSION: THE ANSWER TO THE RESEARCH QUESTION.................................93

6.1 Introduction...........................................................................................................93

6.2 Procurement and supply chain management ........................................................94

6.3 Literature study.....................................................................................................96

6.3.1 Political perspective ..............................................................................................96

6.3.2 Procedural perspective .........................................................................................97

6.3.3 Government research ...........................................................................................97

6.4.1 Fair .......................................................................................................................99

6.4.2 Equitable ..............................................................................................................99

6.4.3 Transparent ..........................................................................................................99

6.4.4 Competitive ........................................................................................................100

6.4.5 Cost-effective......................................................................................................100

6.5 Interpretation of analysis.....................................................................................101

6.6 Answer to the research question.........................................................................102

6.7 Recommendations..............................................................................................103

6.8 Conclusion..........................................................................................................104

LIST OF SOURCES.......................................................................................................105

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CHAPTER 1

GENERAL INTRODUCTION

1.1 Introduction

Modern governments are expected to deliver public services in such a way

that all members of society can benefit from it and enjoy a quality life. The
needs of societies are varied and for this reason, governments create
different public institutions to focus on specific needs.

Public institutions require goods and services to both function and to fulfil
their societal goals and objectives. Certain basic needs for public institutions
are the same, for instance, they need stationery, cleaning materials, and so
forth. The specific field of a service delivery department determines what
other kind of goods and services are required. When the National
Department of Public Works go shopping, the bulk of their goods and
services purchases will come from the construction industry aisle, so to
speak. The Department of Defence on the other hand, does not only
purchase from the ammunition aisle, they also do bulk shopping for uniforms
and consumable goods, such as food. Defence might also meet a purchaser
from the Department of Health in the medical supplies section. Trepte
(2004:11) provides an overall needs description when stating “(g)iven the
range of its functions, government provides and uses all manner of goods
and services from the mundane (office equipment and stationery) and
necessary (roads, schools, hospitals, utility services and airports) to the
complex and innovative (civil and military communications systems,
satellites and fighter aircraft).”

More and more societies demand accountability and governance in the

execution of their governments’ activities (Jonker 2002:242). When utilising
public resources, public accountability becomes important in terms of the

1
allocation, utilisation of and the results that the spending has achieved
(http://unpan1.un.org/intradoc/groups/public/documents/un/unpan028466.pd
f).

Government’s intention with public procurement was highlighted when

procurement was taken up in South Africa’s interim (Republic of South
Africa 1983) and final Constitutions (hereafter called the Constitution)
(Republic of South Africa 1996). This raises the question – why was
procurement law elevated to receive Constitutional regulation? The answer
to this question will be dealt with throughout this research.

This study focuses on regulatory innovations in the South African

Government’s procurement policy from 1999 to 2005. The selected period of
research includes procurement policies relevant to the period before and
after the Public Finance Management Act 1 of 1999 (hereafter called PFMA)
and the introduction of a supply chain management system.

Aspects to be dealt with can best be summarised in the following table. The
contents relating to the two eras form the basis for this dissertation and will
be evaluated in chapter 5 and discussed in other chapters. It must be noted
that some of the legislation indicated in the left hand column stayed in effect
well into South Africa’s new dispensation.

2
TABLE 1: PRE- AND POST-PFMA ERA

Pre-1993 Post-1993

Supreme law

The Constitution of the Republic The Constitution of the Republic of

of South Africa 66 of 1983. South Africa 110 of 1993.
The Constitution of the Republic of
South Africa 1996.

Acts

State Tender Board Act 86 of Public Finance Management Act 1 of

1968. 1999.

Exchequer Act 66 of 1975. Preferential Procurement Policy

Framework Act 5 of 2000.

Government Immovable Asset

Management Act 19 of 2000.

Broad Based Black Economic

Empowerment Act 53 of 2003.

Regulations

Regulations in terms of the Regulations in terms of the Public

State Tender Board Act, 1 July Finance Management Act 1 of 1999:
1988. Framework for supply chain
management.

Preferential Procurement Regulations,

2001. Pertaining to the Preferential
Procurement Policy Framework Act.

Procurement prescripts

General conditions and General Conditions of Contract.

procedures (ST 36).

3
User manual: directives to Supply chain management: a guide for
departments in respect of accounting officers/authorities.
procurement (ST 37).

Constitutional procurement principles

Fair.

Equitable.

Transparent.

Competitive.

Cost-effective.

As can be seen from the above table, public procurement was dealt with
under every heading relevant to the two periods, except for “Constitutional
procurement principles”. The Constitution of the Republic of South Africa
110 of 1983 and the Exchequer Act only refer to “land” and “movable state
property”. The 1983 Constitution and the Exchequer Act do not provide
adequate information on all aspects of public procurement to warrant a
comprehensive discussion. For this reason only basic information will be
provided later in this chapter.

The Constitution of the Republic of South Africa 110 of 1983 does not
provide procurement principles, for instance in a fair and transparent way.
Section 30 of the Constitution does, however, state that the State President
and Parliament can make laws pertaining to good government. One can
therefore assume that “good government” refers to the manner in which all
divisions of the public service must execute their functions. The acquisition,
alienation, provision and maintenance of and control over land are referred
to as auxiliary services relevant to own affairs of the various population
groups (Republic of South Africa 1983). In 2007 the present South African
government extended direction relevant to immovable property by means of
a framework for the management and coordination of the use of immovable
assets and issuing of guidelines and minimum standards in respect of

4
immovable asset management that is captured in the Government
Immovable Asset Management Act 19 of 2007 (Republic of South Africa
2007).

The Exchequer Act 66 of 1975, chapter III under the heading: General
financial control (31)(a), established the National Treasury’s power in
promoting efficiency and economy in the utilisation of state money and state
property. Although no direction is provided in the manner of procurement,
section R of paragraph III, confirms the National Treasury’s responsibility in
terms of the alienation and letting or disposal of movable state property
(Republic of South Africa 1975).

1.2 Background to the study

The South African government identified public procurement as a tool to

achieve, for example social and economic goals. The realisation of these
goals could only take place through a public sector procurement reform
process that commenced in 1995. In this regard, interim strategies such as
the 10 Point Plan and the Green Paper on Public Procurement Reform in
South Africa paved the way towards a Constitutional procurement system.
The role of public procurement within the South African context will be
discussed throughout this research document.

This section provides conceptual and historic background to the study. In

the private sector, money is put into a business to make money out of the
business. Within the public domain, the legislature provides public service
institutions with capital to achieve non-monetary ends, such as societal
goals (Pauw et al 2002:14). Because of non-monetary goals, the
performance of accounting officers cannot be measured against monetary
value but measured against compliance to policies and procedures in the
attainment of societal goals (Hardiman & Mulrean 1991:19). The
achievement of predetermined outputs and outcomes are however the real
test when measuring performance. Public services are delivered with funds
largely obtained from taxpayers. For this reason clear processes and

5
procedures must be in place for the procurement of goods and services or in
order to ensure prudent financial spending.

As stated in the introduction, procurement was elevated in 1996 through

section 217 of the 1996 Constitution and effect was given thereto under
sections 76 and 38 of the Public Finance Management Act (Republic of
South Africa 1999). Section 76 of the PFMA deals with Treasury regulations
and instructions whereas section 38 reflects the responsibilities of
accounting officers. In terms of said sections, accounting officers/authorities
for a department must ensure that that department, trading entity or
Constitutional institution “… has and maintains” an appropriate procurement
and provisioning system. The PFMA plays a major role in the administration
of government institutions. Through the implementation of the PMFA, heads
of departments became responsible and accountable for their budgets and
for the decisions that they make in the course of the management of their
departments, also known as “devolution of responsibility” (AusAID and the
South African Capacity Building Program 2000).

In adherence to section 38 of the PFMA, a procurement policy should

describe the method or rules by which public sector institutions procure
goods and services from the private sector. It means affording potential
contractors sufficient access to the procurement process, widely advertising
government contracts and allowing enough time to participate in the
(procurement) process (Bolton 2007:48). However, government institutions
do procure from each other, for instance paying for municipal services. The
private sector, in turn, also procures from government, for example when
government disposes of goods and immovable property.

It is appropriate at this stage to provide a brief overview of government

initiatives post-1993 that played a key role in establishing a procurement
system as it is now.

Government published a 10 Point Plan, as an interim strategy in 1995

(Doyle 2002:36). Although the 10 Point Plan has been superseded by

6
subsequent legislation, the principles have shaped the transformation of
procurement practices since 1995.

The 10 Point Plan was replaced in April 1997 by the Green Paper on Public
Sector Procurement Reform. The Green Paper was government’s first step
towards greater policy co-ordination across the different spheres or levels of
government (Doyle 2002:219). The document was an initiative of the
Ministry of Finance and the Ministry of Public Works. The Green Paper was
created as a discussion document which contained various proposals aimed
at achieving objectives of good governance. The Green Paper was viewed
by government as a significant milestone in the transformation of public
sector procurement in South Africa (Republic of South Africa 1997). It
introduced new procurement management concepts such as an affirmative
procurement policy, life cycle costing, value for money and appropriate risk
management strategies (Doyle 2002:36).

After the introduction of the approach of financial management rather than

financial control, new legislation was passed which included the PFMA.
Madue summarises the role of the PFMA as: “... to modernise financial
management in the South African Public Service in order to support the
processes of public administration, which are focused on achieving
sustainable development and high-level public services” (Madue 2007:306–
318). Overall, the PFMA introduces a uniform system of public sector
financial management, which improves on an erstwhile system in which
accountability was undermined, amongst others, because different
legislation applied to different entities, and expenditure control was too
narrowly regulated. Compliance with the PFMA is in compliance to the
International Financial Reporting Standards (IFRSs). However, Madue
acknowledges that compliance to the PFMA remains a challenge in so far
as over- and under-expenditure and the achievement of effective, efficient
and economic financial management are concerned (Madue 2007:306–
318).

In adherence to section 217(3) of the 1996 Constitution and in order to

utilise public procurement as an active instrument of socio-economic policy,

7
the Preferential Procurement Policy Framework Act 5 of 2000 (Republic of
South Africa 2000) (hereafter called the PPPFA), was promulgated in
February 2002. The Preferential Procurement Regulations, 2001 (hereafter
called the PPR) (Republic of South Africa 2001), gave substance to the
contents of the PPPFA. The purpose of this act and regulations is to
enhance the participation of historically disadvantaged individuals (hereafter
called HDI) and to achieve certain Reconstruction and Development
Programmes (hereafter referred to as RDP) (PPR 2001: Section 17) goals
such as the promotion of small, medium and micro enterprises (hereafter
called SMMEs) (PPR 2001: Section 1) through the public sector
procurement system (Deputy Minister of Finance 2002).The PPPFA and
subsequent Regulations will be discussed in more detail in chapter 4.

In November 2000 the Report on Opportunities for Reform of Government

Procurement in South Africa, by Roger Webb, served before Cabinet. The
Webb Report is one of two documents that gave direction towards the
introduction of an integrated supply chain management system (Webb
2000).

The second document, a Joint Country Performance Assessment Review

(hereafter called the CPAR) was conducted in collaboration with the World
Bank during 2001/2002 (The Country Procurement Assessment Review
2002). The primary objectives of a CPAR are to:

 provide a comprehensive analysis of the country's public sector

procurement system, including the existing legal framework,
organisational responsibilities and control and oversight capabilities,
present procedures and practices, and how well these work in
practice;
 undertake a general assessment of the institutional, organisational and
other risks associated with the procurement process, including
identification of procurement practices unacceptable for use in Bank-
financed projects;
 develop a prioritised action plan to bring about institutional
improvements, and

8
  assess the competitiveness and performance of local private industry
with regard to participation.
(http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/PROCUR
EMENT/0,,contentMDK:20105527~menuPK:84283~pagePK:84269~pi
PK:60001558~theSitePK:84266~isCURL:Y,00.html).

The findings and recommendations of both reports will be discussed in

chapter 3.

1.3 Motivation for this study

While being a public official for 14 years, the researcher was frustrated by a
lengthy procurement and provision system. Every request for goods and or
services had to take place according to the book. The researcher believed
that procurement, as a support function, should facilitate and not frustrate
organs of State in their functioning and the discharging of their obligations.

The researcher felt that government procurement by way of the State

Tender Board Act was viewed as an end in itself and not a means to an end.
This view resonates with the opinions of other authors. Knipe, for example,
is of the opinion that “(h)istorically far too much emphasis has been placed
on compliance and process accountability and far too little on managerial
and social accountability” (Knipe 2002:266).

The procurement system in terms of the State Tender Board Act 86 of 1968
was, according to the National Treasury, for some time already obsolete and
therefore supply chain management was introduced as the system that has
the potential to replace the outdated practices and conform to international
best practices (Republic of South Africa. 2000a:2).

The value of this study lies in the analysis and comparison between
procurement in terms of the State Tender Board Act and procurement in
terms of the PFMA. The objective is to determine whether changing from

9
process-orientated practices to a best practice approach may provide the
basis for society to benefit as a whole. The analysis and comparison will be
made in chapter 5.

This research has additional academic value because there is not any
documented research that focuses on a parallel analysis of the two South
African systems. Furthermore, although the South African procurement
system has been analysed in detail by authors such as Bolton (see chapter
3) and the compilers of government sponsored research reports (see 3.2.4),
not much attention has been paid to the regulations themselves.

1.4 Research question

Procurement in terms of the State Tender Board is often referred to as

outdated, centralised and process driven and having cumbersome
procurement processes. In September 2003, government adopted the new
integrated SCM function that will be part of financial management and will
conform to international best practises.

The aim of this research is to determine the progress, if any, made by

introducing new regulations and policies in the South African public supply
chain. Therefore, the research question is: To what extent do the regulations
and policies in the new democratic dispensation embody progress in public
procurement in South Africa? The term “progress” implies a comparison and
measurement in terms of one or more criteria.

1.5 Objectives of the study

The objective of the study is to answer the research question. The answer to
the question will allow the researcher to also determine whether any
meaningful innovation took place in public procurement with the introduction
of the PFMA. The researcher will further then be able to determine whether

10
government strategies such as the 10 Point Plan are captured in the new
SCM policy.

In order to achieve the main objective of the study, the following sub-
objectives had to be met:
 Identify the regulatory basis of the two systems;
 Analyse the most pertinent regulations and prescripts of the two
dispensations in detail;
 Compare the two sets of regulations and prescripts;
 Devise a measuring instrument to enable an evaluation, and
 Apply the instrument.

1.6 Method of the study

The objective and approach to the study is closely linked with each other. To
reach the objective of the study the researcher first had to set out
conceptual and statutory aspects pertaining to the field of study in chapter 2
and 3. The pre- and post-PFMA procurement systems are the units of
analysis whereas the ST36, ST37, Guide to accounting officers/authorities
and GCC are the units of observation. The units of observation represent
the units of analysis. Under the previous procurement system the ST36
reflected the State Tender Board’s General Conditions and Procedures for
government procurement. The State Tender Board’s user manual that
provided directives to departments in respect of procurement is known as
the ST37. At the time of this dissertation the State Tender Board Act 86 of
1968 was not yet repealed. The act and related documentation uses the
terms “tender” and “tenderers”, as do the PPPFA and its regulations, while
other documentation relevant to the post-PFMA stage uses the terms “bid”
and “bidder”. For the sake of consistency with the legislation, the researcher
avoids “bid” and “bidder” as far as possible. Information gathered from the
units of observation provided the facts for coming to conclusions.

11
Investigating innovations took place by means of a desk study and
interpretation of policy documents within frameworks developed for this
study.

An easy readable matrix with the same structure as table 1 earlier in this
chapter was created. Contextual information from the various documents
were summarised under the relevant headings and therefore placed against
each other. By dissecting these regulatory guidelines for procurement, the
researcher will be able to determine whether a “new” SCM policy was
indeed created or if the context of the previous procurement regulations
were merely re-written and if it was really new, if it was an improvement.

In order to determine whether an improvement occurred, the researcher

worked out a set of criteria in terms of which the evaluative comparison was
made.

1.7 Demarcation of the study

This study begins with the introduction of the PFMA in 1999 and includes
the promulgation of the Regulations in respect of the Framework for Supply
Chain Management, December 2003. The content of applicable legislation
and regulations will be broadly discussed in chapter 4.

Legislation pertaining mostly to national departments is used. Only one of

the three levels of government was selected to have a more focussed
approach. The most important demarcation of the study is perhaps to limit it
to the analysis of the appropriate legislation. In other words, the researcher
does not study the application or results of the legislation and producers, but
only the texts themselves.

12
1.8 Terminology

Comprehensive theoretical clarification within the South African context,

pertinent to the research, is provided in chapter 2. Terminology and
abbreviations utilised throughout the study are briefly clarified below.

1.8.1 Accounting officer

Accounting officers are heads of departments and take full responsibility and
accountability for all expenditures incurred by their departments. (Bolton
2007:34).

1.8.2 Effective

Effectiveness, according to Lyson and Gillingham, “is a measure of the

appropriateness of the goals the organisation is pursuing and of the degree
to which those goals are achieved” (Lyson & Gillingham 2003:2).

1.8.3 Efficient

Being efficient implies achievement of an objective at the lowest possible

cost (Vogt et al 2002:21).

1.8.4 Equitable

Equitable refers to the equalling of disparate groups in South Africa. Instead

of treating all groups exactly the same, groups who face different levels of
resources and development should receive different treatment (Bolton
2007:50).

13
1.8.5 Fair

Fairness implies: free from discrimination, just and appropriate in the

circumstances; impartial, in conformity with rules or standards, treating
people equally, unbiased, uncorrupted, and unprejudiced (Bolton 2007:46).

1.8.6 Institution

“(A) government institution is a body established by a government and used

to achieve the particular objectives of the government concerned by
applying administration” (Du Toit & Van der Waldt 2008:42).

1.8.7 Public accountability

Public accountability is an obligation to expose, to explain and to justify

actions (Schwella et al 2001:16).

1.8.8 Public policy

According to Doyle, public policy “... is a declaration of a course of action

that is taken by government to achieve societal aims and objectives” (Doyle
2001:165).

1.8.9 Preferential procurement

South Africa’s 1996 Constitution makes provision for empowerment in state

procurement for people who were previously disadvantaged by unfair
discrimination (Hugo 2004:55).

14
1.8.10 Procurement

In the South African context “… procurement refers to instances where the

government acquires goods or services and when it sells or lets assets”
(Bolton 2007:3).

1.8.11 Supply chain

In a government context, supply chain can be said to be a network of

organisations that are involved in the different processes and activities
dealing with products and services to be delivered to the ultimate customer
(Lyson & Gillingham 2003:71).

1.8.12 Supply chain management

It is the planning, design, and control of all information and material flowing
from the origin of the goods and services to the end-user to ensure that
customer needs and wants, present and future, will be met in an effective
and efficient manner (Kruger, De Wit & Ramdass. 2006:7).

1.8.13 Value for money

From a procurement perspective, Lyson and Gillingham considers value for

money “as taking into account the optimum combination of whole life cost
and quality necessary to meet the customer’s requirement” (Lyson &
Gillingham 2003:418).

15
1.8.14 Regulations

Regulations are subordinate legislation issued in terms of existing

parliamentary laws (Van der Waldt 2002:87).

1.9 Overview of chapters

Chapter 1 (general introduction) provides a general introduction to the

dissertation, the background and motivation for the study as well as the
research question. This chapter also provides the objectives and approach
to the study, clarifies the demarcation of the period of study and provides
the method of research. Specific key concepts used in the text are also
listed and briefly explained and an overview of chapters provided.

Chapter 2 (conceptualisation of procurement and supply chain

management) defines and provides a conceptual overview of the concepts
relevant to procurement and supply chain management in the public sector.
Supply chain management in the private sector will be touched on in an
effort to determine the concept’s role in the public sector. Chapter 2 sets the
foundations for later chapters. Theory relevant to the main focus of the study
is thus placed into context.

Chapter 3 (literature survey) is devoted to the analysis of articles and

literature by other authors relevant to both public procurement and related
fields of study. The chapter also provides a summary of the findings and
recommendations of The Webb Report and the CPAR. Both these
documents were crucial in paving the way towards public procurement
reform.

In chapter 4 (regulation of public procurement in South Africa) the regulation

and procedures of public procurement in terms of the State Tender Board
Act and the 1996 Constitution of the Republic of South Africa are discussed.

16
Examples are also provided of legal actions against departments and the
State Tender Board.

In chapter 5 a critical analysis and comparison between the outdated

procurement and provisioning practices and the new integrated supply chain
management function are done. Characteristics of both the “old” and “new”
practices are classified based on written information. The classification is
encapsulated in an easy readable matrix. Information from the matrix is
used to test what progress, if any, had been made in terms of the
Constitutional and PFMA procurement requirements.

Chapter 6 provides a summary of the findings of the study, with an analysis

of stumbling blocks that have already been identified and the possible
consequences thereof. From the analysis a conclusion was reached based
on written information.

1.10 Conclusion

Benjamin Disraeli said: “Change is inevitable in a progressive country.

Change is constant” (Goodman 2005:127). After the first democratic
elections in South Africa in 1994, large-scale political reforms were
introduced to eradicate poverty and underdevelopment. Public Procurement
is fundamental to government’s strategy to mould the economy into a
sustainable unit (Van Vuuren 2006).

The introductory chapter provided a background and motivation for the

study, identification of the units of analysis as well as reasoning for
procurement progression from the introduction of the PFMA to the
promulgation of the regulations in respect of the framework for supply chain
management.

17
CHAPTER 2

CONCEPTUALISATION OF PROCUREMENT AND SUPPLY CHAIN

MANAGEMENT

2.1 Introduction

According to Rugge, Public Administration was traditionally conceptualised

as “… its virtuous sister to some, its dull servant to others” (Rugge
2003:177). Behan agrees with Rugge when stating that procurement and
purchasing have been seen in some departments as a low level, low profile,
low powered activity (Behan 1994:16).

The perception that procurement is “subservient” to line functions severely

restricts the contribution thereof to organisations. In this chapter
procurement will be discussed as a concept, the methods of procurement in
terms of the Constitution of 1996 will be provided, the role of procurement in
aspects relating to modern society will be discussed and the role of
procurement as an instrument to achieve certain goals will be discussed
briefly.

2.2 Ideas on procurement

Sherman defines procurement as “... a business function charged with and

qualifying external sources, forming agreements, and administering them so
that material and services that enhance the work of the organisation are
reliably delivered” (Sherman 1991:9). Trepte complements Sherman’s
definition by stating “[p]rocurement (purchasing) is primarily an economic
activity. It concerns the economic relationship between vendor and
purchaser and, to the extent that transactions occur in the context of a
market order, that relationship will be determined by the laws of the market”
(Trepte 2004:5).

18
Pauw is of the opinion that there is a great deal of terminological confusion
in scholarly literature and officially documentation about the words:
“procurement”, “acquisition”, “supply chain”, “purchasing” and “sourcing”
(University of South Africa 2005:48; see also Bolton 2007:1, 3 & 67). For
example, the American government have been using “acquisition
management” rather than procurement since 1984. According to Sherman
“[a]cquisitions are likely to require many procurement actions. The
procurement process is intertwined with and integral to acquisitions but in
government usage, [it] generally refers to the planning, execution, and
administration of individual contract actions” (Sherman 1991:21).

Lyson and Gillingham differentiate between “purchasing and procurement.”

They consider “[p]rocurement [to be] a wider term than purchasing which
implies acquisition of goods or services in return for a monetary or
equivalent payment. Procurement, however, is the process of obtaining
goods or services in any way including borrowing, leasing and even force or
pillage.” They consider procurement to be a more “accurate term” resulting
in it being used “… in job titles such as ‘procurement manager’,
‘procurement agents’ and ‘head of procurement’” (Lyson & Gillingham
2003:5).

In South Africa, direction is derived from the 1996 Constitution since the
manner in which any organ of state may contract for goods and services are
described under the heading “procurement”. The Constitutional mandates of
departments allow procurement to take place in various forms such as
buying, hiring, letting, granting of any right and disposal of government
property.

Behan argues that sourcing and supplier analysis are part of government’s
commitment to obtain the best suppliers on behalf of tax payers. He defines
sourcing to be “... the identification and (where necessary) development of
possible sources of supply”. Supplier appraisal, according to him is “… the
systematic investigation of these identified resources”. He identifies trade
journals, trade directories, supplier catalogues, visits from supplier’s
representatives, trade exhibitions, discussions with other purchasers and

19
advertising by the buying department to be examples of sourcing methods
(Behan 1994:31–34).

In summary: public procurement always has to do with a transaction

between the state and an outside party. The apparent tension between the
use of the term by Sherman as quoted above and the South African 1996
Constitution, where section 217 is entitled Procurement, can be resolved by
pointing to this fact. Sherman uses “procurement” to refer to individual
instances of such contracts, while the South African 1996 Constitution is
referring to these contracts in general. Procurement is not the only form of
acquisition because organs of state can also acquire goods internally.
Buying or purchasing is not the only form of procurement.

2.2.1 Methods of government procurement

For the sake of clarification, the methods of procurement that were referred
to in section 2.2 will briefly be discussed.

2.2.1.1 Buying (purchasing)

Buying in the public sector takes place either by means of quotation or open
tender. (Where the need for specific goods or a specific service exists, it is
advertised in the Government Gazette for all interested parties to submit
their offer). The method of buying the required goods or service depends on
the monetary value of the requirement, as determined by National Treasury.
But in circumstances such as emergency cases or sole suppliers, the
means of procurement can be waived.

2.2.1.2 Hiring and letting

Although leasing is not included in the National Treasury’s definition of

procurement, the researcher will provide practical examples in order to
differentiate between hiring, letting and leasing. The department of Public
20
Works for instance hires vehicles for official use from a car rental agency.
The Department acts in terms of its mandate to lease accommodation from
the private sector, and to let public property to the private sector.

2.2.1.3 Granting of any rights

The granting of rights takes place when government for example, grants
servitude over state land for a farmer to get to a main road and granting
rights to the private sector to build and manage toll roads. Granting of rights
also takes place when taxi drivers are given permission in the form of a
permit to use a specific route in a municipal area, or when private
companies advertise on bridges on train coaches or on municipal busses.

2.2.1.4 Grants

Van Niekerk defines grants as, “[g]overnment provid[ing] a financial or in-

kind contribution to a private organisation or individual as encouragement to
provide a service so that the government does not have to provide it.
Welfare schemes serve as an example of grants to service providers which
government, on its own, cannot achieve” (Van Niekerk 2002:264). It is a
moot point whether this is procurement strictu sensu (in the strict sense –
this is not legal Latin strictu sensu, but rather a Latin term in general use).

2.2.1.5 Disposal

Disposal is the final process when an institution needs to do away with

unserviceable, redundant or obsolete movable assets. According to the
National Treasury, disposal is not only the process of selling, but depending
on the nature and condition of the asset an organisation may choose to
transfer or destroy assets (Republic of South Africa. Guide for Accounting
Officers 2004:7.1.2). The disposal of movable property and letting of
immovable property must be at market-related value and to the best
advantage of the stage.

21
Section 5 and 6 of the PPR makes provision for the sale and letting of
assets. Noticeably the legislators’ neglected to include the aforementioned
in the PPPFA. According to Deltas and Evenett “governments can
discriminate among bidders by using three policy instruments: price
preferences, cost preferences, and direct exclusion of firms from bidding in
the first place” (Deltas & Evenett 2006:303). Given these options, the
legislator’s neglect to include the sale and letting of assets in the PPPFA is
again accentuated.

Although Public Private Partnerships (hereafter called PPP) (Republic of

South Africa 1999: Treasury Regulation 16) are not part of the “official”
definition of public procurement, the inclusion thereof in Treasury
Regulations 1999 warrants mentioning under the heading “method of
procurement”.

2.2.1.6 Public private partnership

South African law defines a PPP as a contract between a public sector

institution and a private party, in which the private party assumes substantial
financial, technical and operational risk in the design, financing, building and
operation of a project. Public private partnerships are regulated by means of
section 16 of the Treasury Regulations.
(http://www.ppp.gov.za/Pages/default.aspx)

2.3 Context of procurement

Not only are sound procurement practices a requirement for optimising

scarce resources, but public procurement also holds significant secondary
objectives for the South African community. For instance, the use of modern
technology is of key importance in the attainment of value for money and
procurement as a tool can also deal with contemporary dilemmas.

22
2.3.1 Public procurement and the economy

Trepte considers public procurement in an economic context “… to mean

the act of a public body purchasing or acquiring goods, works and services
from the market place. It therefore involves the question of the economic
activities and of its relationship with other economic entities operating in the
market” (Trepte 2004:9). According to Bolton, South Africa’s public sector
procurement was estimated to be 14% of the gross domestic product (GDP)
in 2007 (Bolton 2007:3).

“Due to the legacy of the apartheid years, South Africa had at the time of
writing a “main stream” or first economy that was led by a minority of 13% of
the population and an emerging (second) economy of small, medium and
micro enterprises owned by historically disadvantaged groups, comprising of
the balance of 87% of the population. Government identified public
procurement as a key mechanism to bridge the gap between the first and
second economy (Van Vuuren 2006:2). “When, where, what and from whom
government procures products and services gains crucial importance for the
profitability, survival and development of specific economic sectors” (Doyle
2001:217).

Government procurement practices in this highly competitive world market

need to match those of the best and most demanding private sector
procurement organisations. But where does this view of procurement take
us when we know that government departments do not exist to make a
profit? (Behan 1994:3) The answer can be found in the three-Es, efficiency,
effectiveness and economy. “Economy implies frugality in the use of public
money, efficiency on the other hand to sound financial management and
effectiveness entails performance and outcomes in the context of
government policies and programmes” (Drewry, Greve & Tanquerel
2005:63).

23
2.3.2 Public procurement as a policy tool

Public procurement is used by the South African government as a tool to

achieve socio-economic objectives. In 2005, 60% of Telkom’s R4,9 billion
capital expenditure was spent on BEE companies and R873 million was
spent on procurement from SMEs (Wadula 2006:12–15). From these figures
it is evident that public sector procurement has a significant role to play in
achieving socio economic objectives, thereby eradicating poverty and
unemployment.

The South African 1996 Constitution, specifically section 217, broaches the
issue of preferential procurement. The PPPFA is the result of section 217. It
aims to (amongst others):

 advance the development of SMMEs and HDIs;

 promote women and physically handicapped people;
 create new jobs;
 promote local enterprises in specific provinces, in a particular region,
in a specific local authority, or in rural areas, and
 support the local product.

The PPPFA dictates how the government will go about awarding contracts
for goods and services. Public procurement as a policy tool will be described
in more detail in chapter 4.

2.3.3 Public procurement as a political policy tool

The role of public procurement in achieving political goals is not only

recognised by government, but also acknowledged by the judiciary system.
In Marvanic Development (Pty) Ltd and Another v Minister of Safety and
Security and Another, it was stated:

24
“In our country, government procurement is one of the key mechanisms for
ensuring that those previously locked out of economic opportunity by the
policies of apartheid, are given an opportunity to participate” (Marvanic
Development (Pty) Ltd and Another v Minister of Safety and Security and
another 2006 JDR 0217 (SCA)).

In the United Kingdom public procurement was used in the past, to achieve
overtly political ends by boycotting companies with commercial interests in
South Africa (Sparke 1996:43). There is also a growing appreciation of the
linkages between specific national objectives and public procurement
practices. “As well as having a direct bearing on development-sensitive
state programmes, the implementation of government procurement policies
reveals much about the governance-related priorities and challenges facing
a society” (Evenett & Hoekman 2005:20). In the execution of their political
mandate governments must acknowledge the importance of public trust.

Phillips and others are of the opinion that “[e]ffective procurement practices
provide governments with a means of bringing about social, environmental
and economic reform. Conversely, malpractice within public procurement
demonstrates a failure of governance and typically arises from corruption
and fraud” (Phillips, Caldwell & Callender 2007:140). O’Neill, on a more
fundamental level, is of the opinion that poor resources management
causes erosion of public confidence and deterioration of (an) investment
climate. According to her the “… institutions and office-holders on whom
transparency requirements have been imposed, are now seen as less
trustworthy and less trusted.” O’Neill submits that this situation might be
because of a lack of trustworthy performance and lower levels of trust in the
institutions and office-holders of which transparency has been required.”
She postulates that “[t]hose who have already become suspicious remain
suspicious, and a great deal of evidence of change will be needed before
they change their minds” (O’Neill 2006:75–76).

25
2.3.4 Public procurement and technology

Technological developments have added a new dimension to procurement.

Asset management, for instance, is simplified by making use of bar coding
and bar code readers when issuing movable assets and stocktaking.
Manual verification of movable assets can be expensive when considering
the manpower and hours utilised for the task. Information technology on the
other hand, has the following benefits: faster data entry, greater accuracy,
reduced labour and costs and faster access to information which results in
better decision-making. However, the advantages also come at a cost; not
only cost associated with for instance infrastructure and training, but also
with complementary reform such as telecommunications regulations and
privatisation (Evenett & Hoekman 2005:20).

2.3.5 The role of government procurement within the socio-economic

environment

According to Mabaso, “… there are (within South Africa) more than 10 000
leading buyers (that procure) from government, parastatals and the private
sector”. “By making tenders worth billions of rand easily and freely available
to SME’s opportunities are created for these businesses to gain experience
and to create a business track record with the government which financiers
consider favourably” (Mabaso 2006:16–17).

The practice of governments to favour domestic suppliers over foreign

suppliers is placed in perspective by Miyagiwa as being a method of
returning tax money to domestic residents which in turn will create more
jobs locally as is the case with the Buy-American Act of 1933 (Miyagiwa
2006:347).

As the largest buyer in the country, the South African government has the
responsibility to use its purchasing power to mould the economy into a
sustainable unit (Republic of South Africa 1997:1). Mattoo, provides global
examples with “significant government presence” to be, “defence-related

26
procurement, state-owned airlines, engines, turbines, transportation
equipment, communications, pipelines, air transport services,
communications equipment, and a number of utility-related sectors” (Mattoo
2006:281–282).

2.4 Clients of procurement

Not only does the type but also the level of services delivered by
government play a vital role in social development. Levine identifies
government’s role in the lives of people to be “… from cradle to grave”.
Government issues birth certificates, provides public schooling in some way
or another, regulates for instance health care, medicine and financial
services; thereby playing a big and intrusive role in the lives of people
(Levine 1988:3).

“Government institutions form part of the public sector and function at

central, provincial and local levels. They all depend on one another and on
the community they serve to provide products and services that meet their
needs” (Du Toit & Van der Waldt 2008:8). For instance, the Department of
Social Development cannot process an application for a child’s welfare grant
if a birth certificate has not been issued by the Department of Home Affairs.
Practically every aspect of people’s everyday life – including
communication, travel, health services, education, and business
development – is influenced by the public domain. “It is virtually impossible
for South African citizens to escape the personal impact of government and
the political process” (Van Niekerk 2002:6).

Government’s service delivery arm is public institutions. To allow for the

smooth functioning of the various institutions, goods and services such as
stationery, medical equipment, office furniture, quantity surveyors and
software technicians are required and often externally procured. A
differentiation is therefore made between internal and external beneficiaries
of procurement.

27
2.4.1 Internal clients

Procurement as part of a supply chain practice is essentially a staff or

auxiliary function that provides goods and services to line functions that will
enable them to achieve government objectives. For procurement purposes
government departments make use of a computerised system called
Logistical Information System (LOGIS) and payment vouchers are
generated by a system known as Basic Accounting System (BAS).

2.4.2 External clients

External clients that depend on government’s procurement processes are

the “people”. Examples of services that government must provide are for
instance, national defence, justice, clean air, courts, public health, public
schools and basic scientific research, to name a few (Pauw et al 2002:19).

Government’s main source of national income is tax, mainly income tax and
Value Added Tax (VAT). Taxes are public in two aspects, firstly because
individual and company taxes are not voluntary but enforced by law and
secondly because taxes are solely to finance expenditure in the public
interest. For this reason public goods and services must have tangible
positive results to be to the benefit of the people. Within this context, the
need for the control of public money becomes clear (Pauw et al 2002:12–
13).

2.5 Theory of supply chain management

In 2001 Mentzer submitted that the term “supply chain management” has
risen to prominence over the preceding 10 years. He considers it to be a
“hot topic” often discussed in periodicals on manufacturing, distribution,
marketing, customer management, transportation or related topics (Mentzer
2001:3). In a South African context, a study by Balia focuses on “Fighting
corruption in the South African public sector with special reference to cost

28
and impact”. He also reviewed the contribution that SCM is making towards
fighting corruption. He highlights the Code of Conduct for SCM practitioners
(Republic of South Africa 2003: Practice Note SCM 4) that was issued
together with the PFMA. The code “… binds all SCM officials to a ‘policy of
fair dealing and integrity’ in conducting government transactions and a
position of trust, implying a duty to act in the public interest’” (Balia
2005:213). Despite the aforementioned, Balia asks “[w]hether a rule-based
code of conduct can be any more effective than a values-based code of
ethics in promoting professional conduct is as difficult a question to answer
as whether codes of themselves are effective in creating awareness of
ethics in public life” (Balia 2005:226). He is however, of the opinion that
SCM introduced a significant change in the procurement of goods and
services.

2.6 Concepts of supply chain and supply chain management

In the life span of goods and services certain steps should be followed in
order to deliver the required goods to their final destination. According to
Vogt et al, “… the supply chain incorporates all the cost, time, transport,
storage, and packaging that may be associated with the various stages of
the process of conversion in order to supply a finished product” (Vogt,
Pienaar & De Wit 2002:7).

Supply chain management entails the planning, design, and control of all the
information and material flowing along the supply chain to ensure that
customer needs and wants, present and future, will be met in an effective
and efficient manner” (Kruger 2006:294: see also Lowe & Leiringer
2006:400). “In essence, supply chain management integrates supply and
demand management within and across companies” (Vogt, et al 2002:7).
Relevant to the private sector, Kruger et al identify supply chain to be “…
that process which starts with the supplier and continues through
manufacturing and distribution until the product reaches the ultimate
customer …” (Kruger, De Wit & Ramdass 2006:294). “The cycle is often
repeated several times in the journey from the initial producer to the ultimate
customer as one organisation’s finished good is another’s input” (Baily

29
1978:88–89). Vogt et al introduce a new perspective to the supply chain
process. According to them, supply chains nowadays “… take into account
the return journey that many finished products undergo after being used a
considerable time by the end-user”. According to them, this incorporates
replacement parts, re-usable packaging “… as well as the disposal of waste
and recycling of parts, components or whole products” (Vogt et al 2007:8).

Within the public sector, the same definition provided by Kruger and others,
is applicable. In a nutshell: when there’s a need for tangible goods, the end-
user identifies the need, quotations or open tenders are used to source the
goods from outside suppliers and goods are received at the department,
registered and delivered to the end-user. When goods, for instance reach
their pre-determined life span, institutions dispose of it in the most
economical way for government.

2.7 South African public sector supply chain management

The role of civil society and potential investors in any country should never
be underestimated. The importance and application of public procurement is
reflected in government’s procurement programmes and policies. Most
countries direct their regulation of public procurement towards the
attainment of efficiency which is, amongst others, achievable through the
implementation of best practice. With the aim of applying best practises, the
National Treasury introduced a supply chain management system for
implementation by all organs of state on 5 December 2003. Documentation
enforcing supply chain management will be discussed in more detail in
chapter 4. The phases in South Africa’s supply chain management system
are set out in the next sections.

2.7.1 Demand management

The objective of the first phase of supply chain management is to ensure

that the resources as per the strategic plan of the department are delivered
at the correct time, price and place and that the quantity and quality of those

30
resources will satisfy the needs (Republic of South Africa 2000a. Guide for
Accounting Officers 2004:25).

2.7.2 Acquisition management

During the second phase organisations must determine how the market
should be approached. Acquisition management is the phase when
attention is given to drafting of specifications, invitation of tenders, closing of
tenders, contract award and contract management (Republic of South Africa
2000a. Guide for Accounting Officers 2004:28).

2.7.3 Logistics management

Logistics management can be described as the science of process which

includes: planning, implementing and controlling the efficient, effective flow
and storage of goods, services and related information from point of origin to
point of consumption for the purpose of conforming to customer
requirements (Coyle, Bardi & Langley 2003:39). It includes for instance,
coding of items, inventory management, vendor performance and transport
management (Republic of South Africa 2000a. Guide for Accounting
Officers 2004:86–88).

2.7.4 Risk management

Risk management takes place to determine and manage possible risks

associated to projects on a case by case basis. In terms of the Guide of
Accounting Officers, the institution should allocate the risk to the party best
equipped to manage the risk (Republic of South Africa 2000a. Guide for
Accounting Officers 2004:40). Methods for risk management are for
instance, insurance, warrants and performance security provided by the
successful service provider (Bolton 2007:112–113).

31
2.7.5 Disposal management

In terms of the National Treasury, disposal management refers to the

disposal and letting of state assets, including the disposal of goods no
longer required (Republic of South Africa 2003: Practice Note SCM 4:
section 3(b)).

2.7.6 Supply chain review

Here a monitoring process takes place, by undertaking a retrospective

analysis to determine whether the proper process is being followed and
whether the desired objectives are achieved (Republic of South Africa
2000a. Guide for Accounting Officers 2004:11).

2.8 Conclusion

In an effort to achieve the ideals of good governance in public procurement,

government acknowledged in the Green Paper on Public sector
Procurement Reform that fundamental institutional reforms will have to be
implemented. Such reforms need to promote efficient and effective
procurement systems and practices which will enable government to deliver
not only the required quality and quantity of services to its constituents but
also promote their general welfare and quality of life.

In this chapter the concept of procurement and the concept of supply chain
management were dealt with. The difference in terminological meanings of
the words “procurement”, “acquisition”, “supply chain”, “purchasing” and
“sourcing” were provided. The methods available for the procurement of
goods and services were identified and briefly discussed. The reader was
also informed of the shortcomings in the PPPFA with regard to disposal.

Under the heading Theory of supply chain management, the six phases
within the supply process were discussed. The six phases were introduced
32
to cover the whole procurement process in an effort to obtain and dispose of
goods and services in an economic, effective and efficient manner. Risk
identification, for instance, allows institutions to identify possible areas of
risks beforehand and to develop plans to deal with these risks. Supply chain
review, on the other hand, allows institutions to review the effectiveness of
their procurement system.

In the following chapter, articles and literature relevant to public

procurement and related fields of study are reviewed as a basis for
examining relevant regulations and procedures within the South African
public sector.

33
CHAPTER 3

LITERATURE SURVEY

3.1 Introduction

Undertaking scholarly research on a topic such as public procurement

reform depends on related work done by other scholars. In this chapter the
researcher intends to analyse the writings of various scholars and
practitioners. In order to do this the researcher undertook a systematic
survey of existing literature both nationally and internationally. In contrast
with most developed countries, South Africa lacks literature that examines
existing processes, procedures and applicable legislation. Although various
authors wrote about public procurement from various perspectives, the
period between the promulgation of South Africa’s supply chain
management system and the writing of this dissertation is mostly captured in
scholarly literature and not yet well covered by research.

3.2 Literature study

For the purpose of this dissertation, public procurement will be discussed by

means of studies where the authors mainly concentrated on procurement in
terms of political, legal, procedural and descriptive aspects. Focus is placed
in literature on procurement as a political and policy tool due to
government’s drive towards social and economic upliftment through,
amongst others, public procurement.

34
The studies, together with their authors can be summarised as follows:

TABLE 2: LITERATURE STUDY TAXONOMY

Literature study

Political Legal Research

Gounden Labuschagne Labuschagne

Studies sponsored Bolton Studies sponsored
by WTO Arrowsmith by the World Bank
and others Arrowsmith and
others

3.2.1 Political approach

Gounden was part of the first cadre of management after 1995 tasked with
implementing the new government’s vision. His research focused on the
impact of South Africa’s preferential procurement policy in the construction
industry. He also examined the way in which government had made
provision for the use of procurement to deal with past discriminatory policies
and practices. Gounden found that the financial premiums borne by the
state in adopting affirmative procurement policy in the construction industry
proved to be insignificant when compared with the initial estimated
outcomes and the overall benefits (Gounden 2000:3–11).

He also established that the use of affirmative procurement in the

construction industry has had a positive impact on the participation of
affirmable business enterprises (ABEs). Bolton defines ABEs as businesses
that are owned, managed and controlled by previously disadvantaged
persons and which have annual average turnovers within a prescribed limit
(Bolton 2007:7–8; see also Shezi 1998). Gounden’s study found that the
financial premium incurred by the state is insignificant. He also concentrated
on how procurement was utilised as a means to an end, the end being the

35
achievement of preferential procurement in the construction industry.
Gounden has a clearly demarcated field of study focussing on the role of
procurement in achieving government’s political goals.

To expand Gounden’s study to the international arena, the researcher will

provide contributions of other authors on the topic of preferential
procurement policies. In the quest for achieving political goals, authors such
as Arrowsmith acknowledges that secondary policies can result in higher
standards of social, political and environmental matters. Notwithstanding
this, Arrowsmith warns that “the cost of procurement policies are often less
visible than those of other instruments, such as subsidies or training, (since)
procurement policies often do not require the parliamentary approval
necessary for, for example, regulatory programmes or tax breaks”
(Arrowsmith 2006:116–117). In agreement with Arrowsmith’s caution, the
researcher suggests that the overall financial implication for all citizens
should be used as a benchmark to determine the actual value for money
achieved in South Africa.

Procurement preference is not only fostered in developing countries, but is

also a reality in developed countries. One of the main reasons for this is to
“… return tax money to domestic residents, create more jobs at home and
reduce imports” (Miyagiwa 2006:346). As already stated in section 2.3.1,
governments’ expenditure in terms of public procurement represents a huge
portion of any country’s gross domestic product. According to Choi “… the
world’s total potential non-defence government procurement market in 2003
was estimated to be close to $1.5 trillion a year” (Choi 2006:249).

The mentioned amount provides valuable information to the WTO in pursuit

of their objectives. One of the WTO’s primary objectives is to raise global
living standards through liberalisation of international markets. The WTO is
of the view that free trade maximises the use of global resources and global
wealth. Free trade allows governments “… to enjoy a comparative
advantage in the production of goods or services when it can produce these
relatively efficiently in comparison with other states” (Arrowsmith 2003:8;
25).

36
The WTO has 22 signatories that strive towards “contributing to greater
liberalisation and expansion of world trade, eliminating discrimination among
foreign products/services or foreign suppliers; and [to] enhance the
transparency of relevant laws and practices” (Hoekman & Mavroidis
1995:2).

Martin Fernăndez asks whether “contracting authorities apply discriminatory

practises systematically?” If this should be the case, he distinguishes
between two situations. The first being when “… discriminatory practises
may be [the] result of complying with national regulations, rules or even
political guidelines requiring such conduct from awarding authorities.”
According to him, when there is a political agenda various degrees of public
accountability are required. In the second situation, “… biased decisions
[are] adopted outside the framework of binding obligations on the
independent initiative of contracting parties.” He is also of the opinion that
discriminatory practises takes place to ensure votes or financial rewards
(Fernăndez 1996:23). According to Labuschagne South Africa also had, at
the time of his study, a system of local preference when awarding public
procurement contracts. Preference was mainly directed towards the
development of marginalised regions. He is however, of the opinion that
secondary objects were mostly directed towards ensuring that a minority’s
interest remains cardinal (Labuschagne 1985:289).

On the other side of the coin, Fedrico Trionfetti identifies two types of
inefficiencies due to discriminatory procurement: the first being the
inefficient production of government output and secondly inefficient
specialisation of the country (Trionfetti 2006:3), the latter having a direct
implication on the economy as a whole.

As one of the WTO’s signatories, the USA is criticised because of the Buy
American Policy. The USA has an explicit policy of preference, whereas
other signatories do not. In the USA’s defence Mattoo found “… that under
certain conditions it may simply not matter if governments discriminate in
their procurement” since trade is unlikely to be affected, also that the real

37
effects “… [are] likely to enhance the welfare of the procuring country”
(Mattoo 2006a:43).

South Africa’s PPPFA is just as explicit. The PPPFA was introduced to

mainly deal with secondary objectives. Procurement has taken preference in
South African’s supreme law section (217(3)). Constitutionally public
procurement must take place in terms of the five Constitutional principles,
but recognition of the achievement of social objectives is one of the primary
contributions when procuring goods and services. Institutions “may” award
points for the “promotion of export orientated production to create jobs”
(PPPFA), but they are not allowed to dispense with the allocation of points
for HDIs.

Bolton compliments South Africa’s preference point system created by the

Procurement Act and Regulations and is positive about the balancing of
costs and “benefits in the use of procurement as a policy tool” (Bolton
2007:276). It is suggested that besides the aforementioned, figures are not
provided of the number of HDI companies that due to institutions’ late
payments, are placed in financial dispute and in some instances liquidated.

The researcher completes this section with Arrowsmith’s perception of the

protection of industries. According to her the protection of industries is
mainly to protect political considerations rather than genuine economic
concerns. She describes this statement in terms of infant industries, “[t]he
infant never outgrows its infancy, and ‘temporary’ preferences and subsidies
tend to be extended through adolescence, adulthood and premature senility”
(Arrowsmith 1996:11).

3.2.2 Legal approach

Most governments have developed procurement policies and mechanisms

similar to the principles captured in section 217 of the South African
Constitution. These governments are, amongst others, aware of the
potential benefits to a nation where regulated procurement takes place.

38
It is submitted that the output of any tender process should be to enter into
legally binding contracts. This can only be achieved if the processes
followed from identification of needs up to the final award of a contract were
above reproach.

Arrowsmith defines procurement as “... the function of purchasing goods or

services from an outside body”. According to her the process takes place
through contractual arrangements, in line with three categories – being
construction services, supplies and services (Arrowsmith 1996:1–4). Bolton
complements Arrowsmith’s processes by identifying three stages of
procurement, being the planning stage, the process of procurement and the
contract maintenance or contract administration stage (Bolton 2007:9). It is
within these stages that those responsible for the procurement process
should be aware of the consequences of their actions or inactions.

Within the procurement process, Behan considers a contract to be “a legally

binding agreement between two or more parties” (Behan 2004:18). For a
more practical perspective, Behan provides the most essential elements that
form part of a contract:
 an offer
 an unqualified acceptance of an offer
 consideration
 an intention to create a legal relationship
 the capacity of the parties to enter into a contractual relationship
 the lawfulness of the object of the contract
 reality of consent

Bolton found that aside from a few shortcomings the legal regime in South
Africa generally gives adequate effect to section 217 of the 1996
Constitution. She concluded that the procurement principles “… serve to
prevent manipulation by organs of state in the award of government
contracts and give power to the courts to review government procedures
and decisions.” She is of the opinion that the principles in section 217 will

39
form part of South Africa’s government procurement system for a long
period of time (Bolton 2007:71).

In the application of the Constitutional principles, Bolton provided explicit

examples of shortcomings in terms of the concepts competitive and cost-
effective, fair and transparent. It should however, be noted that she did not
provide examples of legislative shortcomings regarding equitable.

The researcher will provide only a few of the shortcomings under every
principle. According to her (Bolton), “… legislation […] generally gives effect
to the principles of fairness and transparency.” She, however, identified
shortcomings concerning tender opening, specification writing, acceptance
of alternative offers, and changes to specifications (Bolton 2007:208). With
reference to “competitiveness”, she is of the opinion that advertisements in
the context of supplier lists are not “… sufficiently wide”, and provision is not
made for “… proper safeguards to be in place when it comes to petty cash
purchases” (Bolton 2007:175). Although acknowledging the presence of
processes aimed at achieving “cost-effectives”, she highlights the absence
of “… guidance on the different factors that organs of state may take
account of in the evaluation and selection process.” Another point of
concern for her is that the monitoring of contractual performance is left to
the discretion of institutions. The attainment of value for money is thereby
not regulated and enforced by procurement processes (Bolton 2007:129).
Bolton discusses “equality” under the heading “procurement as a policy
tool”. She is positive of the advantages that preferential procurement holds,
but submits that “… racial inequality and both conscious and unconscious
racial discrimination still persist in South Africa.” Bolton is also of the opinion
“… that it is often difficult to accurately estimate, on the one hand, the cost
involved in policy promotion and, on the other hand, the benefits that may
be achieved thereby” (Bolton 2007:253–257).

Arrowsmith contributed as part of a “three member team” researching “The

economic impact of the European Union Regime on public procurement:
lessons for the WTO in 1998” (Gordon, Rimmer & Arrowsmith 1991:431).
The authors found that the implementation of European procurement

40
legislation resulted in some price savings by the public sector for member
states. They also found among the surveyed purchasers “... that the
application of the legislation has created additional administrative costs.”
The following example was provided; “… in many cases an increased
number of interested suppliers had emerged, without this translating into
any change to the supplier base and any consequent efficiency savings.
The costs of applying the rules were exacerbated by the fact that, in view of
the potential threat of legal action, purchasers tend to adopt a cautious and
defensive approach in applying the legislation” (Gordon et al 1998:449–
450).

A study that can be categorised under both administrative and legal

approach is that of Labuschagne. His study “Staatskontrakte ter verkryging
van goedere, dienste en werke” is a PhD thesis published in 1985
(Labuschagne 1985:289–291). Under this dispensation, it can be said that
Labuschagne aims to identify the similarity between public and private
procurement contracts.

He considers a contract to be any agreement under administrative law that

takes place in terms of mutual trust and agreement (Labuschagne 1985:3–
9). With reference to government contracts, Labuschagne puts it that it
should be understood to be a combination of both private and administrative
law. He, however, cautions that the word “combination” should be
understood to mean “supplement” since the South African law, as yet, does
not acknowledge government procurement contracts under administrative
law. He uses Britain as an example where legal actions relevant to public
procurement seldom takes place in a court of law since disputes are dealt
with by means of arbitration (Labuschagne 1985:57–58).

Labuschagne discusses three types of contracts that government

institutions can enter into, the first being general term contracts. This type of
contract takes place when one contractor is the sole provider of a pre-
determined article for a specific period of time against a specific price.
Blankets for use in government hospitals and correctional and social
services are an example under this type of contract. Contracts for specific

41
goods or services are another type of contract that is entered into when
specific goods or services are required for one specific institution. For
instance the procurement of services on behalf of the Department of
Agriculture takes place under contracts for specific goods or services. The
last type of contract that can be entered into, takes place in terms of
delegation and exemption. In this case government institutions procure
goods and services below R1 000 (this amount has since increased)
(Labuschagne 1985:101–103).

3.2.3 Procedural approach

Arrowsmith and Hartley describe “[p]ublic procurement as an area of great

economic, political and legal significance, representing a significant
proportion of economic activity in most countries.” They are of the opinion
that “[g]overnment procurement involves a complex set of choices
embracing what to buy, from whom to buy, how to buy, and selection of the
choice criteria” (Arrowsmith & Hartley 2002: introduction).

Labuschagne also contributes under this heading. His study provides

readers with broad information of South Africa’s tender processes in 1985.
He finds a similarity between South Africa, the USA and Britain’s
procurement system, whereby one institution is responsible for procuring
goods and services on behalf of other institutions. In South Africa, Treasury
is the responsible institution (Labuschagne 1985:11–14). Labuschagne does
not discuss procurement according to definite tender stages but provides a
chronological discussion of the procurement function. Procurement is
discussed under the headings “tender invitation”, “submission of tenders”,
“consideration and award of a tender”. These headings capture extensive
detailed information that also includes examples of court cases relevant to
these stages (Labuschagne 1985:114–151).

According to Labuschagne two methods of procurement are available, the

one by means of competitive tendering and the other, negotiation. In terms
of competitive bidding, sealed and confidential tenders are received from
various tenderers, broad and complete specifications are provided and the
42
contract is usually awarded to the lowest price tenderer. Negotiation as a
method of procurement is described as any method that does not take place
in terms of competitive bidding. Labuschagne acknowledges that although
said description is not comprehensive, little doubt exists as to when
negotiations should take place. Labuschagne identifies four possible
scenarios: the first being when government is unable to provide
specifications or in the case of confidential tenders; secondly, when two or
more capable and interested tenderers are not in agreement with the
provided specifications; the third in the case of an emergency when the
compilation of competitive specifications is not practical, and lastly, when
price is not the only considering factor (Labuschagne 1985:98–99).

As part of procurement control, Labuschagne highlights a dual control

system. He submits that public procurement is regulated by means of
various treasury policies but accounting officers (rekenpligtige beamptes)
stay responsible for this function within their respective departments.
Payment should only be effected once confirmation of the achievement of
value for money is received and also when goods or services are provided
against the required standards. Labuschagne is of the opinion that the dual
system contributes to minimising irregular expenditure (Labuschagne
1985:86).

To conclude, Labuschagne submits that although government procurement

is regulated by legislation, policies and delegations, administrative law is not
applied. He, however, is of the opinion that administrative law should be
recognised in those instances where regulated tender activities take place.
His study therefore finds that private law is primarily used and only in certain
instances, public law.

Bolton identifies three stages in government procurement, namely the

planning stage; the process of procurement; and the third stage being
contract maintenance or contract administration (Bolton 2007:9). Long, for
the sake of clarification, distinguishes between contract administration and
contract management. According to him contract administration
encompasses the tasks to be accomplished, whereas contract management

43
deals with how these are accomplished and how they are controlled (Long
2000:528).

Notwithstanding the three stages in government procurement, Bolton goes

into more detail when she identifies “… six key events where use is made of
tendering as a procurement method”. According to her, similar events may
apply when procurement takes place by means of, for example quotations.
The events are: “(1) the solicitation of tenders; (2) the submission of
tenders; (3) the receipt and evaluation of tenders; (4) the award or
acceptance of a tender; (5) the conclusion of a contract; and (6) the
maintenance and administration of the concluded contract” (Bolton
2005:13–14).

3.2.4 South African government research

Under this heading the researcher will provide three studies where it is
found that the procurement policies are good but that problem areas can be
found in the execution of the policies.

A valuable contribution in terms of public procurement research in South

Africa can be found in a study initiated by the Eastern Cape Provincial
Government. The Provincial Department realised that the twelve Provincial
Departments within the province was in dire need of intervention in their
purchasing processes. The Department of Finance was chosen as a pilot
study to identify areas for improvement in processes.

From this initiative an academic study by Randall developed that

acknowledged the opportunities that supply chain management hold for the
public sector. Randall’s objectives were to conduct a procurement diagnosis
that can create significant sustainable strategic sourcing and infrastructure
improvements and to assess E-Procurement readiness and the possible roll
out of E-Procurement Systems (Randall 2002:10).

44
While concentrating on the procurement processes and distribution in the
government sector, Randall identified the following problem areas: Firstly,
the procurement processes used were significantly inadequate; and a key
finding is that procurement is not a strategic priority, with the result that the
purchasing processes were not adding any value to the organisation
(Randall 2002:11). To add to this, Randall found that “[i]n many
organisations purchasing staff are often seen as obstacles rather than
partners in completing the tasks” (Randall 2002:105). From a managerial
perspective, Randall concluded that procurement is seen within a broader
strategic context to develop and implement a preferential procurement
management framework (Randall 2002:82).

The need for monitoring SCM practises becomes a reality when considering
the total Consolidated General Government Procurement in South Africa.
According to Randall the estimated “amount of R65 billion for the 1999/2000
financial year, constitutes approximately 13% of GDP and represents some
30% of all government expenditure” (Randall 2002:80). Randall found that
although a perception existed that SCM only applies to a manufacturing
concern, there are similarities between the key businesses processes of
SCM found in a manufacturing organisation that also apply to a service
organisation. Within this context Randall is of the opinion that the
development of procurement strategies, rationalising the existing supplier’s
base and implementing a supplier development programme were eminent
(Randall 2002:17).

A significant finding in her analysis is that “... the current [in 2002] processes
are not the most efficient and effective” but she is of the opinion that
“effectively the policy is good [but] the procedures are weak” (Randall
2002:80).

Under this heading it is appropriate to also give attention to two studies that
paved the way towards the introduction of an integrated SCM system within
South Africa.

45
The Webb Report, published in April 2000, was sponsored by the Australian
Agency for International Development (AusAID) and The National Treasury.
The Report was part of the South African Capacity Building Program; and
The Country Procurement Assessment Review (CPAR), published in
February 2002 was a joint undertaking of the South African government and
the World Bank. The CPAR identified certain deficiencies in current
practices relating to governance aspects.

The studies focussed on the legal framework, rules and procedures,

prevalent procurement practices and possible solutions for improving the
South African public procurement system” (The National Treasury Strategic
Plan 2003–2006:66). In April 2000 The Webb Report was prepared under
the auspices of AusAid and the South African Capacity Building Program.
The Webb Report found the South African procurement system is not wrong
in the way that it functions but rather that it is centralised and process-
driven. Five years before The Webb Report, the Green Paper on Public
Procurement Reform in South Africa stated that organs of state should
become best practice clients and intelligent customers (Republic of South
Africa 1997: paragraph 2.2.2). There is some resemblance between the
findings of The Webb Report and the Green Paper. Where applicable, these
will be highlighted.

The Webb Report recommended five potential changes to the South African
procurement system. First of all, the report suggested improved tracking of
assistance to small, medium and micro enterprises (SMMEs) and historically
disadvantaged individuals (HDIs). According to Webb there are insufficient
procedures in place to accurately assess the effectiveness of the
preferential procurement policies in determining whether the target group
are reached. As part of the PPPFA, procedures had to be set in place to
determine how effective the act has been in directing preferences, and what
the outcomes have been (Webb 2000:10).

A further recommendation is that the National Treasury should be

responsible for procurement policy and the Tender Boards should be
abolished. During the period reviewed by Webb, the responsibility for

46
procurement policy and practice rested with the Office of the State Tender
Board within the portfolio of the Minister of Finance. The Office of the State
Tender Board served the Tender Board which was responsible for ensuring
that policies and processes have been correctly followed and to approve the
award of certain delegated contracts (Webb 2000:12; see also Van Vuuren
2006:3).

The Green Paper on Public Sector Procurement Reform in South Africa

states that the procurement system through Tender Boards is cumbersome
and in some instances results in delays of functional services performed by
organs of State. The Green Paper already then recommended that the role
and functions of tender boards need to be critically re-examined in view of
South Africa's developmental objectives together with its programme to
urgently deliver without undue delays (Republic of South Africa 1997:
paragraph 2.3).

The Webb Report confirms that considerable investment should be made in

training of procurement staff. The Green Paper has the same
recommendation. Procurement staff should be trained in procurement in
general and also in the specific areas of SCM, total quality management,
customer focus and continuous improvement (Webb 2000:21; see also Van
Vuuren 2006:3).

In line with global trends [in 2000], The Webb Report also indicates that
procurement needs to be more cost-effective – and that does not
necessarily mean getting a cheaper price. It means doing procurement
better, smarter and at less internal cost (Webb 2000:2; see also Van Vuuren
2006:3). The concept cost-effective is one of the procurement pillars that will
be further discussed in chapter 4.

Lastly, a migration to commercial information technology in order to follow

the path of electronic commerce is suggested. According to The Webb
Report, electronic commerce comprises of normal commercial transactions
which includes ordering, delivery of receipts, invoicing and payment – all
done electronically. Due to the rate of implementation of information
47
technology by SMMEs, electronic commerce cannot be considered to be the
sole solution for procurement business practices at government level. The
Green Paper states that world competitiveness depends as much on a
comparative advantage in the public policy area as it relies on technology
(Republic of South Africa 1995: paragraph 2.2.1). Therefore, if government
does not want to be found in a reactive position when pressure for the
implementation of electronic commerce arises from the business sector,
major policies have to be developed on the implementation of this end-to-
end procurement method (Webb 2000:29).

No reference is made to the ST36 and ST37 in the report. It is therefore not
clear whether these documents were consulted to formulate the conclusions
made. The researcher’s analysis in chapter 5 will allow her to determine
whether the regulatory changes made to public procurement deal with some
of the issues identified by The Webb Report.

The Minister of Finance granted approval for a Joint Country Procurement

Assessment Review (CPAR) to be undertaken by the National Treasury’s
Supply Chain Management unit in collaboration with the World Bank, during
2001 (The National Treasury Strategic Plan. 2003–2006:66). The findings
would be part of government’s assessment of the procurement reform
objectives.

The investigating team found that a number of important recommendations

of the Green Paper had not been implemented. While new acts were
passed, legal and institutional reform did not take place, leading to policy
fragmentation and confusion relating to the implementation of new acts (Van
Vuuren 2006:3). The deficiencies identified were summarised under issues
relevant to governance and aspects pertaining to the interpretation and
implementation of the PPPFA and its associated regulations (Webb 2000:3).

48
3.2.4.1 Governance issues

According to the CPAR, a single legislative framework for the three spheres
of government is required to guide procurement reform initiatives.
Government needs to replace the outdated and inefficient procurement and
provisioning practices with a SCM system that will allow for a systematic
competitive system for the appointment of consultants. The SCM function
must be fully integrated with the financial management processes in
government and should conform to internationally accepted best practices.
Minimum norms and standards need to be set in order to promote uniformity
in bid documentation, advertising, receipt and adjudication procedures. The
CPAR further identified a need to monitor value for money performance
(Webb 2000:3).

3.2.4.2 Implementation of the PPPFA and its associated regulations

Van Vuuren summarises the alleged deficiencies relevant to the

implementation of the PPPFA as follows:
 Preferential procurement policies are not well formulated in organs of
state due to a lack of national targets.
 Qualification standards are insufficient or not adequately verified.
 The cost and outcome of the preferential system is not adequately
assessed to evaluate the merits of the system.
 The National and Provincial Tender Boards do not adequately
evaluate who qualifies as a “disadvantaged enterprise”, since bidders
are seldom required to provide detailed information to verify their
claims.
 The system does not cater for capacity building of disadvantaged
enterprises.
 There are no significant quantitative data on the cost and outcome of
the preferential system (Van Vuuren 2006:4).

49
The CPAR identified three policy interventions in an effort to deal with the
identified deficiencies. Firstly, government should introduce an integrated
SCM function not only to replace the outdated procurement and provisioning
processes, but to also introduce internationally accepted best practice
principles that will deal with government’s preferential procurement policy
objectives. Secondly, government needs to introduce a systematic
competitive procedure for the appointment of consultants. A competitive
system will allow for the acquiring of advice in an unbiased manner without
any affiliation which may cause conflict of interest (Webb 2000:4–5). The
third policy intervention suggests a national legislative framework to enforce
minimum norms and standards and uniformity in respect of SCM practices
and the interpretation of policy objectives.

The Regulatory Framework for Supply Chain Management was approved by

the Minister of Finance and took effect on 5 December 2003. The
Framework was promulgated two years after the Joint Country Procurement
Assessment Review was completed and six years after the Green Paper on
Public Procurement Reform in South Africa. If the South African
procurement and provisioning system is so outdated, one can only
speculate on the progress that could have been made if the Framework for
SCM had been implemented four years earlier. Of significance to the study
of the researcher is the absence of any reference to the ST36 and ST37 in
the CPAR, especially so if one takes into account that this study was
initiated by the National Treasury.

3.3 Conclusion

While authors such as Gounden is of the opinion that the PPPFA is

achieving what government intended for it to achieve, research conducted
by government found that since the cost and outcomes of the PPPFA are
not assessed, the merits of the system cannot be evaluated. On a more
practical level, Arrowsmith submits that secondary policies can result in
higher standards of social, political and environmental matters. Contrary to
the advantages recorded by Gounden and Arrowsmith, Trionfetti is of the

50
opinion that discriminatory procurement within a country leads to inefficient
production and inefficient specialisation.

Bolton considers South Africa’s legal regime to give adequate effect to

public procurement in terms of the Constitution. With regards to the five
Constitutional principles, she highlights several shortcomings in the practical
application of it. When procurement legislation is enforced on WTO
members, Arrowsmith suggests that a hike in administrative costs take
place. The Webb and CPAR Reports highlighted aspects that required
intervention in the manner in which public procurement took place in South
Africa.

Chapter 4 identifies legislation relevant to public procurement. In this

chapter the five Constitutional principles are broadly discussed and
applicable court cases are quoted.

51
CHAPTER 4

REGULATION OF PUBLIC PROCUREMENT IN SOUTH AFRICA

4.1 Introduction

Constitutional change in South Africa occurred at a time when the acquired

role and functions of governments were being reviewed across the globe
(Calitz 2006:5). Not only did Constitutional change take place, but the public
sector was also restructured. Restructuring affected the nature of public
goods and services to be provided by the different tiers of government and
also the groups of individuals who benefit from public goods and services
(Calitz 2006:6).

Chapter 4 examines South African legislation that governed public

procurement before and after 1995. The first part of the chapter focuses on
the legislation that, according to government, required reform, the so-called
pre-PFMA regime. The latter part of the chapter provides an overview of
procurement policies that were adopted as part of the post-PFMA regime.
Chapter 4 lays the foundation for the writer to consider in chapter 5 whether
improvements were made for the better or not.

4.2 South Africa’s procurement development

In chapter 1, the researcher provided the text that indicated the position that
public procurement held in the then ruling party’s legislative framework. For
this reason the two documents will not again be dealt with under this
heading. South Africa’s Constitutional history developed from the
Westminster system of parliamentary sovereignty to one with a supreme
Constitution (Van Heerden 2007:33–44). Being the supreme law,
consideration will first be given to how the Constitution brought forth
statutory procurement reform.

52
4.2.1 Interim Constitution

South Africa had an Interim Constitution (Act 200 of 1993) that was drafted
during the negotiating process of the Convention for a Democratic South
Africa (Codesa) (Venter 1998:22). The Interim Constitution dealt with
procurement in section 187, under the heading “Procurement
administration.” In terms of the aforementioned section, an act of parliament
and provincial laws regulated the procurement of goods and services via
independent and impartial tender boards. The section stipulated that
procurement had to be fair, public, competitive and tender boards had to,
when requested, give reasons for their decisions to interested parties
(Republic of South Africa 1993).

Administration is derived from the Latin ad- (to) and ministrare that means to
serve. Administration implies that the community appoints someone and
endows him or her with social trust and power to guide their living and give
meaning to it. One of the characteristics of administration is that it requires
an exceptionally high standard of managerial skill to achieve the aims of
institutions successfully (Botes et al 1996:169–179). Semasiology (Botes et
al 1996:276 describes semasiology as the study of the meaning of words)
allows the writer the leeway to conclude that the writers of the Interim
Constitution intended for procurement administration to take place through a
system that allows institutions to contract for goods or services in a manner
that will serve the needs of society, and for public service management to
be involved in attaining these goals.

The latter part of section 187 of the Interim Constitution whereby tender
boards had to, when requested, give reasons for their decisions to involve
interested parties, does not form part of the 1996 Constitution. The 1996
Constitution added the term “transparent” to the manner in which institutions
should contract. The meaning of transparent encapsulates more than just
“giving reasons”, making the application of the 1996 Constitution broader.
The term “transparent” will be discussed in paragraph 4.3 together with the
other Constitutional procurement principles.

53
Government procurement gained constitutional status through section 187
of the Interim Constitution and this position was confirmed in the 1996
Constitution. Although the description of the manner in which government
procurement must take place has changed from the Interim to the Final
Constitution, the political and economic significance thereof was
reconfirmed.

4.2.2 The State Tender Board

The State Tender Board Act 86 of 1968, as amended, was established to

provide for the regulation of procurement for supplies and services, the
disposal of movable property, the hiring or letting of anything, the acquisition
or granting of any right for and on behalf of the State and for the
establishment of the State Tender Board, to provide for the establishment of
regional tender boards and to define their functions (Doyle 2002:37).

4.2.3 State Tender Board Regulations, 1 July 1988

According to Doyle the term “state” only covers national government

departments; provincial governments have their own acts “that regulate the
procurement of goods and services by their provincial departments” (Doyle
2002:37). With the promulgation of the State Tender Board Regulations, the
power of the State Tender Board was extended so that the procurement of
goods and services may only take place through the auspices of the State
Tender Board (Doyle 2001:220). The State Tender Board provides
procedural and directive policies to national departments for the execution of
their procurement functions. These policies form part of the researcher’s
comparison of the two regimes and will be discussed in chapter 5.

Changes in the manner in which public procurement must take place, was
effected by the 1996 Constitution. The foundation of development can be
found in history. For this reason a general overview is provided.

54
4.3 The Constitution of the Republic of South Africa, 1996

Government procurement is captured in chapter 13 under the heading

“Procurement”. In terms of section 217(1), public sector procurement should
take place in a manner that is fair, equitable, transparent, competitive and
cost-effective. Haripersadh and Moodley, identify public procurement as
having an overall impact on the economy of the country and should
therefore be read in conjunction with portions of section 146 of the
Constitution (Haripersadh & Moodley 2003:152). Section 146 states:

“(2) National legislation that applies uniformly with regard to the country as a
whole prevails over provincial legislation if any of the following conditions
are met:
(a) The national legislation deals with a matter that cannot be regulated
effectively by legislation enacted by the respective provinces individually.
(b) The national legislation deals with a matter that, to be dealt with
effectively, requires uniformity across the nation, and the national legislation
provides that uniformity by establishing—
(i) norms and standards;
(ii) frameworks; or
(iii) national policies;
(c) the national legislation is necessary for—
(i) the maintenance of national security;
(ii) the maintenance of economic unity;
(iii) the protection of the common market in respect of the mobility of
goods, services, capital and labour;
(iv) the promotion of economic activities across provincial boundaries;
(v) the promotion of equal opportunity or equal access to government
services; or
(vi) the protection of the environment.”

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In an article by Pauw and Wolvaardt, the writers note “… that the five
requirements were not explicated in detail in the 1997 Green Paper on
Public Sector Procurement Reform postdating the Constitution.” According
to them, one should assume that concepts such as “… transparency and
fairness permeate the Constitution” (Pauw & Wolvaardt 2009:71).

The 1996 Constitution refers to principles known as the four pillars of world
class procurement, being value for money, open and effective competition,
ethics and fair dealing as well as accountability and reporting. They are
called pillars because if any one of them is taken out, the procurement
system falls down (Webb 2000:6). Within the South African procurement
context, a fifth political imperative is identified, namely, equity (Van Vuuren
2006:3).

Pauw and Wolvaardt introduce a new dimension to the application of South

Africa’s Constitutional principles. They examine the relationship between the
principles and note that although some of them go hand in hand, such as
fairness and equitableness and cost-effectiveness and competitiveness,
sometimes a trade-off between meeting the criteria will be inescapable. “[f]or
example, too much transparency may hamstring competitiveness and the
consideration of too many tenders will work against cost-effectiveness”
(Pauw & Wolvaardt 2009:68).

Bolton agrees with Pauw and Wolvaardt when stating “… the non-use of
competitive procedures does not necessarily mean that an organ of state
did not attain value for money.” Bolton continues, “… the principle of cost
effectiveness or efficiency may, at times, limit or qualify the use of
competitive procedures”. When use is made of competitive procedures,
such procedures “… must give rise to efficiency and cost effectiveness”
(Bolton 2007:46; see also Heal 2006:59–68).

The five Constitutional procurement principles are not only enforced by the
supreme law, but also forms part of the accounting officers’ responsibilities
in terms of section 38(1)(a)(iii) of the PFMA. Various aspects of the PFMA
were highlighted throughout this dissertation, and for this reason a broad
56
discussion under the heading PFMA will not take place. The researcher will
now provide a comprehensive discussion of the five principles. In defining
the principles, consideration was given to relevant dictionary meanings of
the terms and the subsequent importance thereof for public procurement.

4.3.1 Fair

Bolton captured the most relevant dictionary meanings ascribed to “fair” in a

government procurement context as: “… free from discrimination, just and
appropriate in the circumstances, impartial, in conformity with rules or
standards, treating people equally, unbiased, uncorrupted, and
unprejudiced” (Bolton 2007:46). According to Pauw and Wolvaardt, fairness
“… is much more than a legal requirement: it is the basis of civility.” They
submit that “[f]airness relates to getting what you deserve: due process and
just allocation” (Pauw & Wolvaardt 2009:71–73).

According to Bolton, government procurement is of an administrative law

nature and “fair” as it stands in section 217 of the 1996 Constitution “…
refer[s] to procedural fairness as opposed to substantive fairness.” In short,
procedural fairness is concerned with the manner in which a decision is
taken, whereas substantive fairness examines whether the decision itself is
fair or not (Bolton 2007:47).

In Laingville Fisheries (Pty) Ltd v The Minister of Environmental Affairs and

Tourism 2008, both substantial and procedural fairness were used as
factors in determining “the requirement of administrative reasonableness in
review proceedings.”

“What will constitute a reasonable decision will depend on the

circumstances of each case, much as what will constitute a fair procedure
will depend on the circumstances of each case. Factors relevant to
determining whether a decision is reasonable or not will include the nature
of the decision, the identity and expertise of the decision-maker, the range
of factors relevant to the decision, the reasons given for the decision, the

57
nature of the competing interests involved and the impact of the decision on
the lives and well-being of those affected. Although the review functions of
the Court now have a substantive as well as a procedural ingredient, the
distinction between appeals and reviews continues to be significant. The
Court should take care not to usurp the functions of administrative agencies.
Its task is to ensure that the decisions taken by administrative agencies fall
within the bounds of reasonableness as required by the Constitution”
(Laingville Fisheries (Pty) Ltd v The Minister of Environmental Affairs and
Tourism (C)).

Bolton considers “… procedural fairness in the relationship between an

organ of state and private contracting parties “… to mean that an organ of
state should afford potential contractors sufficient access to the procurement
process. Government contracts should be widely advertised, all contractors
should be familiar with the rules of the competition and all contractors
should be afforded enough time to participate in the process” (Bolton
2007:48).

In South African Post Office LTD v Chairperson, Western Cape Provincial

Tender Board, and others; the complainant argued that the tender process
lacked transparency due to the weighting criteria for award of tenders not
being disclosed prior to evaluation of tenders.

The court held that since all the tenderers were treated equally, “(n)one of
them received any information which enabled it to gain any advantage over
any of the others (…)”, “the system of procurement was clearly fair,
competitive and cost-effective.” In other words, procedural fairness did take
place (SA Post Office Ltd v Chairperson, Western Cape Provincial Tender
Board and Others (C)).

4.3.2 Equitable

The Collins dictionary and thesaurus reconfirms the interconnection and

relation between the principles “fair and equitable” (Gilmour 2002:260).

58
Pauw and Wolvaardt confirm the interconnection when they submit that “…
‘equitable’ simply means ‘fair’ and ‘equity’ or ‘equitableness’ therefore
means ‘fairness’.” They are however, “… convinced that the lawgiver did not
intend just to give the same idea two names from an abundance of caution”
(Pauw & Wolvaardt 2009:74).

Whereas “fair” considers the manner in which decisions are taken,

“equitable” should be aimed at improving the position of vulnerable groups
in South Africa. The intention of government in terms of section 217(1) with
the terms “equitable” is to ensure that “[i]nstead of treating all groups exactly
the same, groups who face different levels of resources and development
should receive different treatment” (Bolton 2007:50). Equity also finds
application in Wessel’s understanding of affirmative action. According to him
“… affirmative action is seen in the context of equality and equity, it is
considered to be a means to enable the disadvantaged to compete
competitively with the advantaged of society” (Wessels 2005:126). Equitable
is therefore not only “… about allocation, but is also according to […] a right
given to a group of people” (Pauw & Wolvaardt 2009:74). In this context,
Fernāndez’s definition of social policy is appropriate where he defines social
policy “… as any purposeful governmental action intended to improve the
social welfare of the whole or part of the same population” (Fernăndez
1996:39).

Equality in terms of public procurement can also be heard by an equality

court. In the case between Manong and Associates (Pty) Ltd v Department
of Roads and Transport, Eastern Cape Province and another, the appellant
brought an application in the High Court (sitting as an equality court) for an
interim interdict preventing the respondent from processing the tenders
received by it for the upgrading of certain roads pending the finalisation of a
review application in that regard. In essence, the appellant’s complaints
related to the allocation of tenders by the Department for the upgrading of a
number of roads in the province. They contended that the tender process
was unfair as envisaged in the Promotion of Equality and Prevention of
Unfair Discrimination Act 4 of 2000, read with the Constitution of the
Republic of South Africa, 1996, since according to them; it amounted to
indirect discrimination against previously disadvantaged persons. The

59
respondents questioned the Equality Court’s jurisdiction to entertain the
relief sought by the appellant. The argument was based on the court’s
jurisdiction to review administrative action under “PAJA”; it does not have
jurisdiction under that act. Judgment held that the Equality Court does have
jurisdiction to entertain the relief sought by the appellant in the present
matter, such jurisdiction being accorded to it by the provisions of the
Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000
(Manong and Associates (PTY) Ltd v Department of Roads and Transport,
Eastern Cape Province and Another (SCA)).

4.3.3 Transparent

According to Hood the term, “transparent”, has attained quasi-religious

significance in debate over governance and institutional design. One of the
several definitions quoted by him encapsulate some of what might be
expected of transparency from a procurement perspective; “… the
availability of information to the general public and clarity about government
rules, regulations and decisions” (Hood 2006:4). Pauw expands on Hood’s
definition by stating that transparency is reflected in government by
“[r]eliable and open information about government procurement in general”
and that such information […] gives the public a better idea of how
government has used their tax revenues, [it is also] a corruption disincentive
[…]” (Pauw & Wolvaardt 2009:74).

Clarke considers transparency not to be a normal condition and therefore

needs to be produced (Clarke 2005:43). Examples within the procurement
process that enable transparent process are: “[p]rocurement information
should be generally available; there should be publication of general
procurement rules and practices; government contracts should be
advertised; and contractors should be able to access the criteria that will be
applied in selecting a winning contractor” (Bolton 2009:54). To add to the
aforementioned; tenders should be opened in public, record should be kept
of tenders opened, all meetings must be recorded, and so forth. In essence,
there should be a transparent trail where all actions and decisions are open
for scrutiny.

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4.3.4 Competitive

Competition can be defined “… as a situation in the market environment in

which several businesses, offering more or less the same kind of product or
service, compete for the patronage of the same consumers” (De J Cronje et
al 2000:69).. In terms of the 1996 Constitution, competition entails awarding
tenders after a number of suppliers have been afforded an opportunity to
compete for contracts.

Bolton provides a valuable observation on the word selection of section 217

of the 1996 Constitution. According to her “… competition can take a variety
of forms [since] no specific reference is made to ‘tendering’ as a
procurement method. In other words, competition can take the form of, inter
alia, the solicitation or calling for tenders, getting quotations, competitive
negotiation or other types of competition” (Bolton 2007:42). Treasury
Regulations in terms of the Public Finance Management Act, 1999:
Framework for Supply Chain Management 6(1), provide some direction. In
terms of said Framework section 6(1), “[p]rocurement of goods and
services, either by way of quotations or through a bidding process, must be
within the threshold values as determined by the National Treasury […].”

At the start of this section the reader was sensitised to the fact that a trade-
off between some of the principles might be inescapable. In order to reach
goals of good governance, some principles should be considered as
inseparable. In terms of competitive procurement, Bolton provides
clarification when stating that “… the principle of cost-effectiveness or
efficiency may, at times, limit or qualify the use of competitive procedure. At
the same time, where competitive procedures are used for the procurement
of goods and services, this must give rise to efficiency and cost-
effectiveness. Thus, while the principle of cost-effectiveness may, at times,
limit or qualify the use of competitive procedures, when use is made of
competitive procedures, such procedures must enhance or reinforce the
principle of cost-effectiveness” (Bolton 2007:45).

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The researcher is of the opinion that in some instances institutions adheres
to one or more principles as a smoke screen to disregard another principle.
For instance, a company that has been supplying the defence force with rat
packs for the past three years alleges it lost the contract due to
“irregularities”’ in the allocation process. Dewina Food Consortium sued the
Department of Defence for excluding them from an R75m, two-year contract
to supply ration packs to the military (The South African Navy & Marine and
Coastal Management). One of the “irregularities” that supports the
researcher’s statement of “smoke screen” adherence to the constitutional
principles was publicly confirmed by a departmental official. Dewina’s unit
price at R44,91 came in cheaper than the successful tenderer, Ibhubesi’s at
R46,02. The Chief Director: Acquisitions responded by saying “Ibhubesi’s
higher price would be adjusted”. The aforementioned statement warrants
questioning of the Department’s application of not only competitiveness but
also fairness and cost-effectiveness. To conclude, Curry is of the opinion
that “[c]ompetition contributes to discouraging corruption; however,
competition does not eliminate the possibility of procurement corruption”
(Curry 2010:88).

4.3.5 Cost-effective

The Oxford dictionary of economics defines “cost-effective” as the

achievement of results in the most economical way. This approach
assesses efficiency by verifying whether resources are being used to
produce any given results at the lowest possible cost (Black 2002:94).
Bolton submits that cost-effectiveness in a government procurement context
should be applied throughout the procurement process and throughout the
process effect must be given to the attainment of value for money (Bolton
2007:43). According to the University of Cambridge value for money is a
term used to assess whether or not an organisation has obtained the
maximum benefit from the goods and services it both acquires and provides,
within the resources available to it (University of Cambridge 1988–2006).
Cost-effective also becomes a point of decision when deciding whether to
“… procure goods or services from an outside entity, as opposed to
providing the goods or services in-house, only if doing so will lead to cost-
savings” (Bolton 2009:43). The achievement of value for money is often

62
described in terms of the “three Es” – economy, efficiency and
effectiveness. Economy refers to the careful use of resources to save
expense, time or effort; whereas efficiency is the delivery of the same level
of service for less cost, time or effort and effectiveness focuses on delivering
a better service or getting a better return for the same amount of expense,
time or effort.

Government procurement in South Africa evolved from when the State

Tender Board was responsible for the procurement of goods and services
on behalf of most departments. Due to their highly specialised needs, only a
few departments such as the departments of Water Affairs, Public Works
and Government Printer had standing delegations to procure their own
goods and services. According to Labuschagne public institutions did not
have free discretion in the selection of their suppliers but had to adhere to
acts, regulations and internal policies. Labuschagne concludes that these
“restrictions” were there to allow for economic and effective procurement
and for the protection of public interest. He is also of the opinion that the
laws and regulations that were in place in 1985 were used to protect
contractors from unfair actions and for the advancement of government
goals towards service delivery (Labuschagne 1985:98).

From section 217 of the 1996 Constitution several acts and regulations were
approved that provide direction in the attainment of the Constitutional
principles. A general overview of applicable legislation will be provided.

4.4 Regulations in terms of the Public Finance Management Act 1 of

1999: Framework for Supply Chain Management

The Regulations in terms of the PFMA forms part of the post-PFMA era. The
Minister of Finance has, in terms of Section 76 (4) of the PFMA, 1999
approved the Regulations in respect of the Framework for SCM. In 2005,
the National Treasury issued amended Treasury Regulations for
departments, trading entities, constitutional institutions and public entities.
The 2003 regulations with regard to the “framework for supply chain
management” appear as section 16A in the 2005 regulations. In February
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2004 the National Treasury issued a SCM guide for accounting
officers/authorities. The Guide for Accounting Officers is a guiding document
designed to assist accounting officers to implement changes in their
procurement and provisioning system as per the PFMA. Annexure A to the
Guide is a general condition of contract that must form part of any
procurement and provisioning contract. The regulations, guide and general
conditions form part of the researcher’s research question and will be dealt
with in chapter 5.

Section 217 of the 1996 Constitution not only provides the manner in which
public procurement should take place; it also reflects in section 217(2) how
government intends to use public procurement as a tool to address past
discriminatory policies and practices. The policy that prescribes the manner
in which section 217(2) may be implemented came into effect on 3 February
2000.

4.5 Preferential Procurement Policy Framework Act 5 of 2000

The Preferential Procurement Policy Framework Act is the result of section

217 of the Constitution “… and is the foundation on which all government,
parastatal and government-owned agencies’ procurement activities are to
be based.” Janisch adds that notwithstanding the fact that the Act is
“remarkably short “[…] [it] dictates how the government will go about
awarding contracts for goods and services” (Janisch 2006:7). The
Preferential Procurement Regulations came into effect in 2001 and provide
broader interpretation and application. Since there is no equivalent Act in
the pre-PFMA stage, this Act and accompanying regulations will not be
included in chapter 5.

The Construction Industry Development Board (CIDB) defines a preferential

procurement policy as “… a procurement policy that promotes objectives
additional to those associated with the immediate objective of the
procurement itself” (Best Practice Guide B1 2004:1). The South African
government is not unique in their sourcing objective. Several government
entities are not only buyers of goods and services, they are also concerned
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with objectives such as the creation of and protection of jobs within their
domestic economies (Sherman 1991:331).

“Due to South Africa’s history of discrimination, unfair practices and

marginalisation of people, various groups in society were denied the
privilege of being economically active within the government procurement
system” (Bolton 2007:256). An example of such discrimination is “… by
means of government policies that under-funded black primary and
secondary education, [resulting in] […] black contractors [having] to
compete with fellow countrymen who had a much better state-funded
education than they” (Pauw & Wolvaardt 2009:74). “The Act was passed
with the aim to encourage uniformity among diverse systems of preferences
that existed amongst the different organs of state, to serve as a tool for
development, to create advancement for previously disadvantaged
individuals (PDI) and to force the procurement process to be more inclusive
by allowing competitive advantage for the PDI owned businesses” (Hugo et
al 2004:55).

Before implementation of the PPPFA, price was the decisive criteria in the
evaluation and award of tenders. The PPPFA introduced a point system as
criteria. Bolton provides a practical explanation of the preference point
system that must be followed. “The total number of points that may be
awarded to contractors is 100, and to ensure that organs of state still obtain
the best price for goods and services, more preference points are awarded
for lower value contracts and less preference points for higher value
contracts” (Bolton 2007:274). In 2009 the following applied: for all contracts
with a Rand value equal to or above R30 000 but below R500 000, a
maximum of 20 points may be allocated for specific goals. In this instance
the lowest acceptable tender must score 80 points for price. For contracts
with a Rand value above R500 000, only a maximum of 10 preference
points may be allocated for specific goals provided that the lowest
acceptable tender scores 90 points for price. The contract must be awarded
to the tenderer who scores the highest points unless objective criteria in
addition to that, pertaining to specific goals, justify the award to another
tenderer (PPFA 2000:2(j)).

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The Act provides direction in terms of the goals for which points “may” be
awarded; being, contracting with HDIs and implementing the programmes of
the Reconstruction and Development Programme as published in
Government Gazette No. 16085 dated 23 November 1994. Although the Act
in section 2(d) uses the word “may”, the regulations dictate in section 13(1)
that HDI must be included as part of the specific goals. The word “may” in
this case allows organisations to, for instance, include “youth” as part of
their goals.

The CIDP considers “objective criteria” and specific goals to be different

concepts. They explain it as follows: “accordingly, socio-economic
considerations fall outside the scope of objective criteria. Objective criteria
relate to compliance with legislative requirements (for example tax
obligations) and commercial (i.e. on technical, quality, capability and
capacity issues)” (CIDB 2004:5).

The South African Chamber Of Business (SACOB), in 2003, considered

preferential procurement to be a system whereby black and white
businesses “pit” against each other (Comments by the South African
Chamber of Business (SACOB) on the Preferential Policy Framework Act 5
of 2000, and the Preferential Procurement Regulations 2003:9). The CIDB
has another view. According to them “[p]referencing strictly in accordance
with the provisions of the PPPFA, i.e. in terms of the points scoring system,
is not considered to be unfair discrimination as no person is denied an
opportunity to tender and a means is provided for promoting equality” (CIDB
2004:6).

Not all international writers are correctly informed of government’s

application of the PPPFA. As part of their introduction to an international
publication, Evenett and Hoekman state: “… South Africa has considered
instituting a scheme which will favour black entrepreneurs and firms that
employ stipulated numbers of black employees. This is part of a sweeping
initiative to enhance the economic status of the majority black population
after the fall of the apartheid regime” (Evenett & Hoekman 2006:XV). In
order not to discredit South African legislation, the researcher considers it as

66
a necessity to find a forum where the application and aim of the PPPFA can
better be explained to not only within the international community but also to
our civil society.

“South Africa is not a welfare state and the government cannot foot the
social bill for an uneducated and unskilled workforce” (Janisch 2006:1). To
address this and other relevant social economic objectives, the Broad-
Based Black Economic Empowerment Act 53 of 2003 was passed
(hereafter called BBBEEA). This Act does not have a counterpart in the pre-
PFMA era, and will therefore not form part of chapter 5.

4.6 Broad-Based Black Economic Empowerment Act 53 of 2003

The researcher will not provide an elaborate discussion on this Act. The Act
is applicable to any enterprise that provides goods and services to any
organs of state or public entities, the applicable enterprises must measure
their BBBEE status against the codes of good practise that the Minister of
Trade and Industry have promulgated. Pauw and Wolvaardt highlight the
fact that although the Act provides for preferential procurement, the
relationship between the PPPFA and BBBEEA is not specified. They,
however provide clarification by stating; “under the general principles of the
interpretation of statutes one must assume that the later legislation would
take precedence over the earlier legislation” (Pauw & Wolvaardt 2009:320).
Janisch defines BBBEE to mean “… the economic empowerment of all
black people including women, workers, youth, people with disabilities and
people living in rural areas, through diverse but integrated social-economic
strategies […]” (Janisch 2006:8). White people are excluded from the Act
that only speaks to a generic term “black people” which refer to coloureds,
Indians, Chinese and Africans. Through the BEE Act “…. capital is being
redirected to black people through the manifestation of government’s
significant […] procurement budget and regulations […]” (Balshaw &
Goldberg 2008:18).

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4.7 Conclusion

Government’s intension to regulate public procurement on a “high” level was

identified in the so-called Interim Constitution of 1993. The Interim
Constitution paved the way for legislative changes in the application and
regulation of public procurement. The manner in which public procurement
was to take place is captured in section 217 of the Constitution of the
Republic of South Africa, 1996. According to section 217(1) of this Act,
public procurement must take place through a system that is fair, equitable,
transparent, competitive and cost-effective. To attain these principles, public
institutions must implement, amongst others, procedures that reflect the
application thereof. However, it is necessary to acknowledge that a trade-off
is in certain circumstances required, for instance, too much transparency
might not be cost-effective.

Notwithstanding the attainment of Constitutional principles, public

institutions should also implement procurement systems that allow for
categories of preference, the protection or advancement of persons, or
categories of persons, disadvantaged by unfair discrimination in the
allocation of contracts. In this regard, national legislation was enacted in the
form of the PPPFA and the BBBEEA. These and other Acts were introduced
as part of the post-PFMA era with no counterparts in the pre-PFMA era.
Noticeably legislative expansion took place in the pre-PFMA era but not
necessary enhancing service delivery through public procurement.

Chapter 5 is aimed at answering the researcher’s research question, being

to determine the progress, if any, made by introducing new regulations and
policies in the South African public supply chain. As explained in chapter 1,
a desk study and interpretation was followed to determine whether a “new”
SCM policy was indeed created or if the context of the previous
procurement regulations were merely rewritten.

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CHAPTER 5

A CRITICAL COMPARISON OF THE TWO REGIMES AT THE LEVEL OF

SUBSIDIARY PROVISIONS

5.1 Introduction

The researcher provides the motivation for this dissertation in chapter 1

where she expresses her personal frustration with lengthy procurement and
provisioning procedures according to the State Tender Board Act 86 of
1968. After public procurement was elevated in 1996, National Treasury
introduced supply chain management to replace the so-called obsolete and
outdated practises.

Personal and government’s expressions should always be subordinate to

the utilisation of procurement and provisioning systems that should form the
basis for society to benefit as a whole. For this reason the researcher
conducted a comparison between the two regimes in order to establish
whether the change from a so-called process-orientated practice to a best
practise approach really took place and if so, if it is an improvement on the
pre-PFMA procurement environment.

Only a general overview of the applicable procurement prescripts is

provided and detailed information will follow from the comparison.

5.2 Overview of the procurement prescripts

As stated in chapter 1, there are two main prescripts that regulated public
procurement in terms of the State Tender Board Act 86 of 1968.

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5.2.1 State Tender Board General Conditions and Procedures (ST36)

The law required the State Tender Board to set procedural policies for public
sector procurement and the socio-economical policies were still set by
government. The Board’s general procurement conditions and procedures
are contained in the State Tender Board General Conditions and
Procedures (ST36). The ST36 covers the whole procurement process and
sets out definitions, general directives, invitation of tenders and the
administration of contracts (Labuschagne 1985:98).

5.2.2 State Tender Board User Manual: Directives to Departments in

respect of Procurement (ST37)

To assist departments in the execution of their procurement needs, the

State Tender Board issued a general user’s manual in which the policy and
directives of the State Tender Board are explained. The manual is known as
the State Tender Board User Manual: Directives to Departments in respect
of Procurement (ST37) (Republic of South Africa 1998). It is submitted that
although most procurement aspects might have been dealt with, not all
procedures were comprehensively set out, thereby opening the door for
departments to use their own interpretation and discretion. This statement
will be tested in section 5.3.

5.2.3 General and special conditions of contract

The National Treasury issued General Conditions of Contract that should

form an integral part of all tender documents. The purpose of the document
is to draw special attention to certain general conditions applicable to
government tenders, contracts and orders and to ensure that clients are
familiar with regard to the rights and obligations of all parties involved in
doing business with government (Guide for Accounting Officers 2003, cover
page of annexure A). Although the contents of the GCC may not be
amended for a specific contract, Special Conditions of Contract (SCC) that

70
will supplement the GCC may be compiled separately for every tender,
where applicable.

5.2.4 Supply chain management – a guide for accounting officers/authorities

According to the National Treasury, the Guide “sets out the philosophy
behind the adoption of an integrated SCM function across government and
will assist stakeholders to understand the responsibilities this implies”
(Guide for Accounting Officers, 2003:2, preface). The Guide is intended to
assist accounting officers in the smooth implementation of SCM
management within their institutions.

5.3 Comparison of procurement in terms of pre- and post-PFMA system

The ST36 consists of 61 pages and 63 paragraphs that are divided into five
parts, which are: definitions, general directives, invitation of tenders,
consideration of tenders and administration of contracts, thereby giving
broad directives for the entire tender process. A total of 28 definitions are
given as an introduction to the conditions and procedures that intended to
provide for uniformity in the interpretation of tender-related matters.

The GCC is annexure A to the Guide and focuses more on the contents of
contracts than the administrative process leading up to a contract. The GCC
consists of 14 pages and 33 clauses. Since one of the aims of the SCM
function is to address inefficiencies in the pre-PFMA method of
procurement, the “new documents” were used as the point of reference,
thereby identifying any changes to the existing documentation. The
comparisons took place under three headings, namely being different;
exactly the same; and same intention but different stated.

The heading “different” encapsulates aspects where the intention of

definitions or directives are in totality different from those in the pre-PFMA
documentation. Considering that government intended to move away from a

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so-called outdated procurement system, this heading should reflect various
areas where improvement, according to government, has taken place. The
heading “exactly the same” is self-explanatory but significant in terms of
governments intention to address inefficiencies in the pre-PFMA method of
procurement. Under the heading “same intention but differently stated”, the
researcher included items where both documents are structured in a
manner that has the same intention but with more detail.

The researcher compared the two documents according to the GCC’s

numbering. Items in the ST36 that have relevance to the GCC are captured
in brackets after the GCC number. To confirm the similarities the researcher
included a second line where the GCC numbering is placed in brackets
behind those of the ST36.

Part one of the GCC is definitions.

Except for numbering, six definitions are exactly the same and five have the
same intention but are differently stated in the GCC. The ST36 does not
provide definitions for contract price, corrupt practice, countervailing duties,
country of origin, day, dumping, force majeure, goods, fraudulent practice,
project site, purchaser and services. The definitions GCC and SCC have no
relevance to the ST36 and “corrupt practice” is defined.

Heading 1: Definitions

Different Exactly the same Same intention but

differently stated

GCC (ST36) 1.1(1.6), 1.8(1.9), 1.2(1.7), 1.16(1.14),

1.9(1.10), 1.10(1.11), 1.18(1.7), 1.19(1.18),
1.17(1.17), 1.22(1.22). 1.25(1.28).

ST36 (GCC) 1.6(1.1), 1.9(1.8), 1.7(1.2), 1.14(1.16),

1.10(1.19), 1.11(1.10), 1.7(1.18), 1.18(1.19),
1.17(1.17), 1.22(1.22). 1.28(1.25).

72
The second heading, application, identifies the procurement areas that
should take place in terms of the GCC. Bids, contracts and orders,
professional services, sales hiring, letting and granting or acquiring of rights
are identified. The conditions are not applicable on immovable property. The
ST36, under the heading conditions and procedures, identify the areas of
reference to be, tenders, contracts and orders. Both documents
acknowledge that in certain instances there is a need for special conditions
of contracts.

Heading 2: Application

Different Exactly the same Same intention

but differently
stated

GCC(ST36) 2.2(2.2). 2.1(2.1), 2.3(2.1).

ST36(GCC) 2.2(2.2). 2.1(2.1), 2.3(2.1).

Direction in terms of the cost for preparing tender documents and place of
advertisement is found under the third heading, general.

Heading 3: General

Different Exactly the Same intention but

same differently stated

GCC(ST36) 3.1(8.1). 3.2(1.26/8.1/8.5/8.6)

ST36(GCC) 8.1(3.1). 1.26/8.1/ 8.5/

8.6(3.2).

The last sentence in paragraph 3.1 of the GCC and ST36 paragraph 12 are
different in terms of the fee chargeable for tender documents where the
GCC allows for a non-refundable and the ST36 a refundable fee. The Guide

73
to accounting officers contradicts the GCC in so far as allowing for a
refundable fee. The GCC only allows accounting officers the discretion to
charge a fee for documents but it must be non-refundable. Section 4.9 of the
Guide under the sub-heading sale of documents provides accounting
officers the discretion to charge a refundable or non-refundable fee.

Heading 4: Standards

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 4.1(13/25.1.3).

ST36(GCC) 13/25.1.3(4.1).

Heading 4, stipulates that goods must conform to the standards set by the
bidding documents and specifications. The ST36 includes SABS
specifications in paragraphs when reference is made to the standard of work
that is expected.

Stipulations on the use of contract documents information and inspection

are provided under heading 5. This heading is supplier directed where the
disclosure of any aspect of contracts are prohibited. No similar reference is
made in the ST36.

Heading 6: Patent rights

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 6.1(57.1).

ST36(GCC) 57.1(6.1).

74
Heading 7, performance security, is specific in terms of the time in which a
tenderer should provide a performance security. Whereas the GCC 7.1
stipulates 30 days, the ST36 makes no mention of the time frame and
therefore allows accounting offers to use their own discretion. Paragraph 7.4
of the GCC also identifies the period of discharge of a security to be not
later than 30 days after the suppliers delivered in terms of the contract.
Again the ST36 does not identify the period in which discharge must take
place. Although, the ST36 does identify the security to be 10% of the
contract value, no stipulation is found in the GCC.

Heading 7: Security

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 7.1(60.1), 7.3(a &

b)(60.3.1).

ST36(GCC) 60.1(7.1),
60.3.1(7.3(a & b).

Despite having the same heading, a number of similarities are found

between the GCC and ST36 in terms of inspections, test and analysis.
When the content is the same but the numbering is different, the
classification took place under “exactly the same”. The GCC does not
provide any direction in terms of the cost associated when rejected supplies
are returned to suppliers. The ST36 stipulates that the cost be for the
account of the supplier.

75
Heading 8: Inspections, test and analyses

Different Exactly the same Same intention but

differently stated

GCC(ST36) 8.6(44.4), 8.7(44.5), 8.1/8.2(44.1),

8.8(44.8). 8.3(44.3),
8.4(44.3.1),
8.5(44.3.2).

ST36(GCC) 44.4(8.6), 44.5(8.7), 44.1(8.1/8.2),

44.8(8.8). 44.3(8.3),
44.3.1(8.4),
44.3.2(8.5).

The manner in which goods must be packed is prescribed under the

heading packing. In terms of both the GCC and section 32 of the ST36 the
contractor is responsible for providing packaging material. Only the ST36
allows for the returning of packaging material at the cost of the contractor.

Heading 9: Packing

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 9.1(32/32.3),
9.2(32.5).

ST36(GCC) 32/32.3(9.1),
32.5(9.2).

Information provided in section 10 of the GCC under the heading delivery

and documents are not directed to a specific requirement. As it stands, a
range of contract specifications are applicable, such as place of delivery,
delivery date, quantities and method of transportation. Documents that may

76
be specified in the SCC are for instance export licences, harbour and
quarantine applicable certificates. No similar requirement is in the ST36.

Both the GCC and ST36 refer to insurance. However, section 11 of the GCC
can rather be classified as a new addition to the procurement system.
Whereas the ST36 only stipulates that local insurance companies should be
used for goods imported, the GCC stipulates full insurance against loss or
damage incidental to manufacture or acquisition, transportation, storage and
delivery.

Heading 11: Insurance

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 11(38).

ST36(GCC) 38(11).

The ST36, paragraph 35.1 provides general information in terms of

transportation services, containers and the cost thereof, whereas heading
12 of the GCC, transportation, only refers to an all-inclusive delivered price
that must be specified in the SCC.

Heading 13, Incidental services and 14, Spare parts are not captured in the
ST36. Incidental services specify additional services that may be required of
the contractor, such as supervision of on-site assembly, furnishing of
specific tools, furnishing of operation or maintenance manuals. The contents
of paragraph 13 do not relieve contractors of their warranty obligations. In
terms of heading 14, an institution may specify in the SCC that materials,
notifications and information pertaining to spare parts manufactured or
distributed by the contractor are provided.

77
Warranty, according to heading 15, encapsulates the terms “quality” and
“guarantee” reflected in the ST36.

Heading 15: Warranty

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 15.1(39.1).
15.2/15.4(40.1).

ST36(GCC) 39.1(15.1).
40.1(15.2/15.4).

Both the GCC and ST36 stipulate a warranty period of 12 months after
receipt of the required goods. The GCC adds to this period another six
months from the date of shipment from the port or place of loading in the
source country. Paragraph 40.3 of the ST36, provides clarification of the
cost implications in the case of replacement of defective supplies, the
liability of the contractor includes free delivery and installation of the goods
to be replaced and the replaced goods shall be guaranteed for a similar
period.

Heading 16, Payment stipulates that the accounting officer must provide the
method and conditions thereof in the SCC. In terms of the GCC, payment
will be made in Rand; the ST36 does not clarify the currency. The ST36
emphasises the importance of an official order and identifies specific
documentation required for various types of services rendered.

78
Heading 16: Payment

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 16.1(43.1),
16.3(43.1.5).

ST36(GCC) 43.1(16.1),
43.1.5(16.3).

In terms of heading 17, Prices charged by the supplier under contract shall
not vary from the quoted prices unless the SCC allows for adjustments.

Heading 17: Prices

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 17.1(50).

ST36(GCC) 50(17.1).

No contract amendments may take place according to paragraph 18 of the

GCC unless it is in writing. The ST36 has the same stipulation but also adds
that such amendments cannot be enforced.

79
Heading 18: Contract amendments

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 18.1(63).

ST36(GCC) 63(18.1).

The ST36 does not make any reference to the assignment of obligations as
is stated in paragraph 19 of the GCC, but provides examples of the
circumstances under which an institution may for instance appoint a
contractor or allow a trustee or liquidator to take over a contractor’s
obligations.

Heading 19: Assignment

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 19.1(48.1).

ST36(GCC) 48.1(19.1).

In terms of paragraph 20 of the GCC, suppliers must inform the purchaser of

all subcontracts awarded. The ST36 does not provide the same stipulation.

Paragraph 21, Delays in the supplier’s performance of the GCC refers

specifically to delays in terms of the agreed time schedules, whereas
paragraph 45.2 of the ST36, provides an umbrella reference to failure in
terms of any conditions of contract. Where the GCC only deals with delays
in the case of a supplies contract, the ST36 includes service contracts.

80
Heading 21: Delays in the supplier’s performance

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 21.4(62.1), 21.1(45.2),

21.6(45.4). 21.3(62.2).

ST36(GCC) 62.1(21.4), 45.2(21.1),

45.4(21.6). 62.2(21.3).

The headings, Penalties and termination for default identifies the remedies
available to an institution in those instances where a supplier fails to deliver
in terms of the contract or is engaged in corrupt or fraudulent practises.
Whereas the GCC makes a distinction between the two, the ST36 combines
penalties and termination under the heading “failure to comply with
conditions and delayed execution”.

In terms of section 22, Penalties, of the GCC, institutions must take into
account the current prime interest rate when calculating a sum that will be
deducted from the contract price as a penalty. The ST36, on the other hand,
stipulates a flat value of one-fourteenth per cent per day for the period of
delay.

Heading 22: Penalties

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 22.1(45.5.2).

ST36(GCC) 45.5.2(22.1).

81
The GCC’s heading 23, Termination for default, is dealt with in a similar
manner in the ST36 but under the heading “Failure to comply with
conditions and delayed execution”. The GCC allows for a termination in
whole or in part, whereas the ST36 only refers to a cancelation of the
contract. Both documents inform the contractor that the institution can
procure, for the cost of the supplier, any goods, works or services outside of
the contract if the requirements are not met. The ST36, however, only refers
to a supplies contract. The ST36 provides for a financial penalty per day that
can be charged. The GCC is more transparent in the application of a
restriction for instance, the period of restriction in the ST36 is left to the
discretion of the Board, and the GCC stipulates that a restriction may not be
longer than 10 years. Both the GCC and ST36 allow for a restriction of any
other business endeavours of any other companies where a restriction is
imposed directly on a person. The GCC includes the Prevention and
Combating of Corruption Activities Act 12 of 2004 as a reason for restriction.
The said Act was promulgated in 2004 and does therefore not form part of
the ST36. To conclude, although there are definite similarities between the
two documents, the GCC is broader and more direct in the application of
restrictions.

Heading 23: Termination for default

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 23.1(45.2), 23.1

(a)(45.5.2), 23.1
(c)(46.1).

ST36(GCC) 45.2(23.1),
45.5.2(23.2(a)),
46.1(23.1(c)).

Clarification in terms of any expenditure to the state when Anti-dumping and

countervailing duties and rights are dealt with are provided under heading
24. The exact same wording is used in the ST36, paragraph 17.1.4 but
82
under the heading “Tender prices and delivery periods”. The GCC adds the
contractor’s responsibility when money is owed to the State.

Heading 24: Anti-dumping and countervailing duties and rights

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 24.1(17.1.4).

ST36(GCC) 17.1.4(24.1).

Heading 25, Force majeure, not only provides for the contractor not to forfeit
his/her performance security due to a force majeure event, but also his/her
responsibility towards the purchaser in such events. Consideration as a
result of a force majeure event is dealt with in the ST36 under the heading
“Failure to comply with conditions and delayed execution”.

Heading 25: Force majeure

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 25.1(45.6),
25.2(45.7).

ST36(GCC) 45.6(25.1),
45.7(25.2).

In terms of heading 26 of the GCC, Termination for insolvency, the

purchaser has the right to terminate the contract in those instances where a
contractor becomes bankrupt or insolvent. The ST36 includes “death of a
contractor” and in accordance with section 48.1.1, the estate of the

83
contractor will not be relieved from any liability according to the original
contract.

Heading 26: Termination for insolvency

Different Exactly the Same intention but differently

same stated

GCC(ST36) 26.1(48.1/48.1.1/48.1.2/48.1.3).

ST36(GCC) 48.1/48.1.1/48.1.2/48.1.3(26.1).

Whereas the ST36 under the heading Settlement of disputes only stipulates
the Board’s decision-making power, the GCC with the same heading allows
for mutual consultation, mediation and settlement in a South African court of
law.

Heading 27: Settlement of disputes

Different Exactly the Same

same intention but
differently
stated

GCC(ST36) 27.1/27.2/27.3/27.4/27.5a(30). 27.5b(30).

ST36(GCC) 30(37.1/27.2/27.3/27.4/27.5a). 30(27.5b).

Section 28, Limitation of liability, is not handled in the ST36. The GCC
identifies the areas for which the contractor will not be held liable and the
maximum cost that is applicable.

The ST36 does not stipulate the language in which a contract must be
written. Heading 29 of the GCC stipulates that the governing language
“shall” be written in English whereas the Guide provides room for

84
interpretation by directing that documents should be prepared in at least
English.

Both the GCC and ST36 identify the applicable law to be in terms of the
South African laws.

Heading 30: Applicable law

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 30.1(8.3).

ST36(GCC) 8.3(30.1).

Both section 31 of the GCC under the heading Notices and the ST36
stipulate that written acceptance must be by means of registered or certified
mail. The two documents are also in agreement regarding the date of
contract commencement.

Heading 31: Notices

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 31.1(7.1), 31.1(28.1).

31.2(7.2).

ST36(GCC) 7.1(31.1), 28.1(31.1).

7.2(31.2).

The heading 32 of the GCC, Taxes and duties captures an important

requirement for all contractors when doing business with any government

85
institution, being of good standing in terms of income tax matters. The ST36
makes no reference to income taxes but only to import taxes.

Heading 32: Taxes and duties

Different Exactly the Same intention

same but differently
stated

GCC(ST36) 32.1(55),
32.2(55).

ST36(GCC) 55(32.1/32.2).

Heading 33 of the GCC, National Industrial Participation Programme has no

equivalent in the ST36.

A revised GCC was introduced in July 2010 that added heading 34

prohibition of restrictive practices. In terms of this heading the department
may refer any matter where it is suspected that concerned parties
participated in a horizontal relationship or collusive bidding to the
Competition Commission for investigation and possible administrative
penalties. This matter is not dealt with in the ST36.
As stated in paragraph 5.2.1, the ST36 captures the whole procurement
process, whereas the GCC is more contract specific. The Guide
complements the GCC by providing additional information that also covers
the whole procurement function. For this reason the researcher included a
comparison between the ST36 and the Guide to determine whether any
change took place between the contents of the documents. The Guide’s
numbering makes it difficult for easy referencing, for instance, paragraph
4.10 with the heading Receiving responses include the following sub-
headings without any paragraph numbers: opening of bids, late bids,
clarification or alteration of bids, confidentiality and completeness of
documentation. In order to provide numerical structure the researcher used
the ST36 as point of reference. To assist the reader the researcher included
the sub-heading names and page numbers for both documents.
86
 Despite different headings, the following information forms part of the
differentiation “same intention but differently stated”. However, special
mention should be made of the Guide’s stipulation that the closing of
tenders should take place after 30 days. According to the ST36 tenders
should close after four weeks. Although having the same intention, 30 days
include weekends and public holidays. In the researcher’s past experience,
institutions used, when required the four week stipulation as a loophole to
exclude weekends and public holidays, therefore advertising with a
shortened tender period.

Table 3: ST36 and The Guide

ST36 Guide

Item Item Page Item Item Page

number number number number

Approved list. 10. 8. Approved list. 4.9. 41.

Validity periods. 16. 10. Validity of bids. 4.8.1. 39.

Tender prices and 17. 10. Price adjustments 4.8.1. 37.

delivery periods. due to escalation.

Charge of documents. 12. 9. Sale of documents. 4.9. 43.

Closing of tenders. 15.1. 9. Bid submission. 4.8.1. 37.

Closing of tenders. 15.3. 9. Preparation time. 4.8.1. 37.

Validity periods. 16. 10. Validity of bids. 4.8.1. 39.

Tender prices and 17.1.1. 10. Price adjustments 4.8.1. 37.

delivery periods. due to escalation.

Firm prices. 51. 20.

Non-firm prices. 52.1. 21.

Alternative offers. 18. 10. Bid content. 4.8.1. 35.

87
Lodging of tenders. 20.1. 11. Opening of bids. 4.10. 44.

Lodging of tenders. 20.3. 11. Bid submission. 4.8.1. 37.

Late tenders. 21. 11. Late bids. 4.10. 44.

Late tenders. 21.1. 11. Late bids. 4.10. 44.

Opening of tenders. 23-23.1. 11. Opening of bids 4.10. 44.

General. 24.2. 12. Fraud and corruption. 2.8.2. 23.

Vendor assessment. 4.12. 46.

General. 24.8. 12. Fraud and corruption. 2.8.1. 24.

General. 24.3. 12. Rejection of all bids. 4.11. 45.

Quality. 39.2. 16. Specification of 3.4.1. 27.

goods/works or
services.

Inspections test and 44.1. 17. Inspections test and 4.8.1. 35.
analysis. analysis.

Remedies in the case 46.1. 19. Corrupt practice. 2.8.1. 24.

of bribes etc. 46.2.

Security. 60. 23. Sureties. 4.8.1. 40.

The researcher made a comparison between the GCC and the ST36 and
also the ST36 and Guide. No fundamental changes were introduced to the
so-called outdated and rule-driven procurement system. The Guide,
however, provided broader information pertaining to the different methods of
procurement available to institutions when procuring goods and services.

For this comparison the researcher highlighted items where the difference in
presentation needs special mentioning and where according to her past
experience items in the ST37 should have been reflected in the Guide. The

88
existence of an approved departmental procurement policy does not
necessitate consultation of the pre-PFMA documentation, thereby allowing
for practices that might not be in line with the 1996 Constitutional
procurement principles. In these instances ignorance can be blamed.

A major contribution to the procurement process is chapter 5 of the Guide.

The appointment of consultants was identified by Cabinet as an area where
a systematic approach is required. Although the ST37 does provide
directives, a more wide-ranging explanation of the procedures for selecting,
contracting and monitoring of consultants are found in the Guide. The
disposal of goods is also broadly discussed in chapter 7 of the Guide
whereas the ST37 provides very limited information in this regard.

The Guide introduces standard bidding documents to be used for all

standard procurement of works and services. These documents are for
instance numbered as SBD 1. According to the National Treasury the
introduction of standard bidding documents will promote advantages such
as, cost-effectiveness both in financial and human resource terms, easier
understanding and interpretation by new emerging contractors and
simplification of the documentation process. The Standing Tender Board
also prescribed standard forms that must serve as a basis for all tender
invitations. These documents are numbered for instance, B 1. As is the case
with the Guide, allowance was made for institution to customise documents
in those instances where the standard forms are not suitable for a specific
need. The ST37 documents include several generic functions such as
informing tenderers that the closing date has been extended, application for
export facto approval and a request to extend validity periods. Similarities
can be found between some of the B and SBD documents for instance,
matters relating to tax (B 4 and SBD 2), professional services (B 9 and SBD
3.3), declaration of interest (B 20 and SBD 4) and the National Industrial
Participation programme (B 22, SBD 5).

Part of the Guide’s standard bidding documents are those having reference
to preference points claimed such as small business, purchases, sales,
locally manufactured products and empowerment of skills and knowledge

89
(SBD 6.1 to SBD 6.12). Although it is not stated how bidding documents will
contribute in achieving the objectives thereof, the researcher is of the
opinion that the documents are not so cumbersome as those of the State
Tender Board and the contents are simplified.

With regard to the acceptance of tenders, chapter 9 of the ST37 clarifies

what constitutes a contract and provides a broad overview of the
administrative actions required to enter into a legal binding contract. The
Guide only stipulates that a contract or service level agreement should be
signed and that the original documents should be kept safe. Considering
that the successful completion of all projects are dependent on legally
correct contracts, the researcher is of the opinion that more detailed
information should have been provided in a document intended to “guide” all
aspects of the procurement process.

One of several procurement aspects that are now left to the discretion of
accounting officers are securities. Chapter 14 of the ST37 provides for
instance levels of securities that must be set for building and construction
contracts. These levels are based on the monetary value of contracts. The
percentage that may be claimed varies between 0% and 10% of the
estimated contract amount. In terms of the Guide, accounting officers may
decide whether bidders should supply securities, and if so, at what
percentage. The only direction provided is that the percentage should not be
so high as to discourage bidders. It is therefore within the accounting
officer’s delegation to set securities on a case by case basis without being
consistent in this regard. The application of securities not only contradicts
government’s aim of promoting a uniform SCM process but also allows for
instances of breach of the requirements of good governance.

The ST37 provides a definition for a case. In terms of section 2.2 of the
ST37, a case is:
The consolidated requirement of related items, which requirement exists at
a given point in time and at the time of consolidation is known to the specific
organisation and has been quantified. It covers the estimated total value
(VAT included) of all the items concerned for the complete service or supply

90
and not only the value of any individual item appearing on the consolidated
schedule of requirements (such as a requisition, job card, worksheet or
procurement schedule).

The value of this definition lies in the recognition of what constitutes splitting
of tenders. Splitting of tenders is a deliberate action to split tenders into
smaller portions or phases with the advantage that an institution does not for
instance need to go out on open tender. The different phases have their
own estimated value below R500 000 whereas in reality the consolidated
requirement of related items are above R500 000. Splitting up of tenders
does not only constitute irregular expenditure but also prevents transparent
and competitive tendering. Since the ST37 is to be replaced by an
institution’s own policy and procedures, the inclusion of the definition of a
case in the Guide would have ensured that this activity be highlighted as
unlawful practice.

Although the pre-PFMA stage is marked as, amongst others, having deeply
ingrained practices, the role of the State Tender Board allowed for
transparent processes due to their delegation to scrutinise and approve
institutions’ tenders. For instance, where the tender conditions are not fully
complied with, where the validity has expired and the lowest tenderer is not
prepared to extend his or her offer or where a tender is recommended that
has family ties with a member of the standing tender committee, a motivated
recommendation has to be forwarded to the State Tender Board for further
attention. In terms of the post-PFMA stage the accounting officer regulates
matters such as the aforementioned through internal policies and
procedures that may compromise transparency and accountability.

5.4 Conclusion

In chapter 1 the researcher identified the method of study to be a desk study

and interpretation of policy documents within a framework developed for this
study. The desk study was done in this chapter where the researcher made
a parallel analysis between the GCC and the ST36 as well as the Guide and
the ST37. The Constitution and PFMA require institutions to procure through
91
a system that is fair, equitable, transparent, competitive and cost-effective.
In chapter 6 the researcher will provide a summary of the five Constitutional
principles and also identify those items, if any where the post-PFMS system
allows for an improvement in the manner in which public procurement
should take place.

92
CHAPTER 6

CONCLUSION: THE ANSWER TO THE RESEARCH QUESTION

6.1 Introduction

The research question will be answered in this chapter and for this reason
the researcher reminds the reader of her research aim, namely to determine
to what extent the regulations and policies since 2003 embody progress in
public procurement in South Africa?

In his budget speech of 2010, Minister Pravin Gordhan, referred to public

procurement as wasteful and inefficient. According to the minister, greater
transparency and accountability in procurement systems can assist in
dealing with corrupt practices, inefficiency and poor planning. The minister
also referred to the tendency to award contracts to contractors that cannot
perform, resulting in society not receiving the goods and services that they
require and are entitled to (http:www.treasury.gov.za/comm.-
media/speeches/2010/2010051101.pdf).

One year later in minister Gordhan’s 2011 budget speech, he referred to

public procurement as vulnerable to waste and corruption. The minister
acknowledged that the integrity of governance is compromised and that the
country is in dire need of a strong procurement framework. Minister
Gordhan called on senior managers to work actively to improve their
procurement processes and oversight of this function
(http://www.treasury.gov.za/docu,emts/national%20budget/2011/speech/spe
ech2011.pdf).

Considering the minister’s acknowledgement of the state of public

procurement in South Africa, the researcher submits that the compilation of
a strong procurement framework cannot be separated from the manner in
which the framework is executed. When such a framework is part of

93
irresponsible bureaucracy the absence of terminology such as integrity,
efficiency, effectiveness and accountability contributes towards questionable
governance of those in public office. The PFMA allocates the responsibility
of developing an appropriate procurement system within certain guidelines
for accounting officers’ respective institutions. It is therefore possible that
government’s procurement initiatives are executed in a manner that makes
it vulnerable to waste and corruption.

Information that the researcher considers to be relevant not only towards

answering her research question, but also highlighting the role of public
procurement in the public services, will now be summarised.

6.2 Procurement and supply chain management

At the start of her study the researcher provided the reader with information
on government initiatives that were directed towards the utilisation of public
procurement as a tool to achieving predetermined outputs and outcomes
relevant to the attainment of societal goals. As identified in section 1.2
government’s first initiative to address the so-called inequalities of the past
was introduced as an interim strategy in 1995. The 10-Point Plan was
replaced in 1997 by a Green Paper on Public Sector Procurement Reform
that government viewed as a milestone in the transformation of public sector
procurement in South Africa. Whereas the aforementioned two documents
were introduced with a political approach, the PFMA came into effect as part
of the introduction of financial management rather than financial control.
Financial management is in line with government’s approach on a
performance-driven system based on measurable outputs. However, the
state of public procurement in South Africa reached a point where
government acknowledges that the integrity in the country’s governance is
undermined. The latter strengthens the researcher’s observation that the
problem might not necessarily be the introduction of new regulations but
rather the execution thereof.

Although procurement is a means to an end through which goods and

services are obtained, it is in South Africa also utilised by government as an
94
end to means for the attainment of non-monetary goals. As indicated in
section 2.3.2, when, where, what and from whom government procures
goods and services plays a crucial role towards the attainment of these
goals. Labuschagne is of the opinion that governments are compelled to
consider the economic contribution that public procurement holds for the
attainment of specific political, economic and social goals (Labuschagne
1985:283). The researcher’s study focused on the regulations that stipulated
how public procurement took place before and after the introduction of the
PFMA.

The ST36, ST37, the Guide to accounting officers and GCC were identified
in section 1.5 to be units of observation, but in order to answer the research
question these documents were also units of analysis in chapter 5.
Information collected from the units of observation were compared in order
to determine if any regulatory changes really took place when analysing
specific items against each other. Interpretation of information gained will be
analysed later in this chapter.

The word procurement is part of her study title and for this reason she
considered it important to clarify terminological confusion in literature and
official documentation in section 2.2. Chapter 2 was dedicated to
conceptualisation of procurement and supply chain management. In section
2.1, the researcher quoted Behan who in 1994 captured words that reflect,
according to him, the role that public procurement often plays in public
institutions, being, low-level, low-profile and a low-powered activity. This
only captures the internal perception that institutions may have, but in reality
public procurement holds significant secondary objectives for government
and the South African community. Since South Africa is not a welfare state,
public procurement is used as a tool to address and achieve social
economic objectives through the introduction of legislation such as the
PPPFA and BBBEEA. However, the economic advantages that public
procurement holds for eradicating poverty and unemployment is often
overshadowed by malpractice when people execute public procurement.

95
According to Balia the SCM system introduced by the National Treasury in
2003 is significant in terms of changes that were introduced. As indicated in
section 2.5, he especially highlights the importance thereof with regards to
the Code of Conduct for SCM officials. Section 2.7 identifies procedural
actions that must be included in an institution’s procurement policy, like
demand management, acquisition management, logistics management, risk
management, disposal management and supply chain review. These stages
are significant in terms of recognising the operational linkage between
different areas of procurement that were previously dealt with in isolation.

For the purpose of this dissertation, the researcher included literature where
the authors mainly concentrated on procurement in terms of political, legal
and government research. The heading, “government research”, refers to
research that was commissioned by the South African government with the
aim of identifying areas where revised systems and processes can
contribute towards the establishment of an economic and effective public
procurement function.

6.3 Literature study

Since the researcher’s study focuses on South Africa’s public procurement

system, she only refers to local authors in this chapter.

6.3.1 Political perspective

From a political perspective a study by Gounden in 2000 found that the

application of a preferential procurement policy in South Africa had a
positive impact on eradicating past discriminatory policies and procedures in
the construction industry. According to him, his study found that the
adoption of such a policy outweighs the financial premiums paid by the
state. Bolton shares the same sentiment in terms of cost and benefits in the
application of the preference point system created by the PPPFA. However,
both authors did not provide any indication of the rand value coupled to the
cost and benefits allowing readers to test their founding.

96
Two local authors, Labuschagne and Bolton tested the authority of the
judiciary in public procurement. In 1985 Labuschagne researched the
similarities between public and private procurement contracts where he
found that the South African law did not acknowledge government
procurement contracts under administrative law. Bolton’s study in 2007, with
the title, “The legal regulation of government procurement in South Africa”
found that the legal regime in South Africa generally gives adequate effect
to section 217 of the 1996 Constitution, thereby awarding powers to the
courts to review procurement procedures and decisions. In section 4.3.2 the
researcher presented a court ruling where it was found that the Equality
Court has jurisdiction to entertain administrative actions relevant to public
procurement. There is clearly a reformation from 1985 in the role of the
judiciary in public procurement. The researcher is of the opinion that this is a
positive contribution towards enforcing public service accountability.

6.3.2 Procedural perspective

The researcher also did a literature survey of public procurement in terms of

a procedural approach. Labuschagne and Bolton contributed to her study
with their respective identification of similar procurement processes. The
main headings differ but the general application stays the same. Of
significance to her study is that legislation governing the execution of public
procurement was changed but similar procurement procedures are still
followed.

6.3.3 Government research

The heading, “government research”, included studies that were

commissioned by the South African government. The researcher provided
information of a study that took place in the Eastern Cape, the Webb Report
and a CPAR. In all three studies government’s aim was to identify problem
areas within South Africa’s public procurement system and to make
recommendations on how to address the identified shortcomings. The
studies found, amongst others, that procurement was not adequately used
to deal with government goals, that a migration is needed to form a process
97
driven system to a result orientated approach, that principles of governance
should be adhered to and that procurement staff should be adequately
trained.

In section 3.2.4, the researcher informed the reader that no reference was
made to the ST36 and/or ST37 in any one of the three reports (Randall’s
study, the Webb Report, and CPAR). Since no items in the two documents
were given as reasons to recommend change to the existing procurement
system, the researcher could not test the validity thereof. The research used
her analysis in chapter 5 to identify those items in the ST36 and ST37 that,
she assumes, necessitated change.

The reader was informed in section 4.2.1 that government procurement

gained Constitutional status through the inclusion thereof in the 1996
Constitution. According to the definition of procurement provided in section
2.2, government can obtain goods or services through for instance,
borrowing, leasing and even force or pillage. Whatever the need or method
of procurement, the South African 1996 Constitution prescribes in section
217 that it should take place in a manner that is fair, equitable, transparent,
competitive and cost-effective. The researcher’s personal opinion is that the
inclusion of public procurement in the 1996 Constitution and other legislation
do not necessary enhance service delivery. However, since the 1996
Constitution stipulates the manner in which procurement must take place,
potential and contracted suppliers can test the application thereof in a court
of Law. Because a broad discussion of the principles took place in chapter
4, the researcher will now only provide a short summary of the five
principles.

98
The five Constitutional principles

6.4.1 Fair

Society’s requirement for the fair application of administrative action in

public procurement is strengthened by section 33 of the Bill of Rights. In
terms of the said section prospective and contracted suppliers have the right
to fair administrative action. In practise a fair procurement system is,
amongst others, one where contractors are given sufficient access to the
procurement process, contracts are widely advertised, all contractors are
provided with the same information, all tenders must be considered and
enough time is allowed for the preparation of tenders.

6.4.2 Equitable

In section 4.3.2, the researcher provided a few authors’ interpretation of the

meaning of “equitable” in terms of public procurement. Wessels’s
interpretation of where disadvantaged groups are provided with the means
to compete competitively with the advantaged is according to the researcher
capturing the essence of government’s aim with the introduction of
legislation such as the PPPFA. Other relevant legislation was discussed in
chapter 4.

6.4.3 Transparent

As is the case with fair, transparency in public procurement is also ensured

by means of the South African Constitution. Section 32 of the Bill of Rights
provides contractors with the right to have access to information held by the
state. In practise tenders should for instance be opened in public, records
should be kept of tenders opened, all meetings must be recorded and
general procurement rules and practices must be advertised. Tenders were
also advertised during the pre-PFMA era but post-PFMA stipulations allow

99
society to scrutinise processes followed and decisions taken. The latter did
not take place before 1999.

6.4.4 Competitive

The researcher discussed competitive procurement in section 4.3.4. A

general theme of competition in public procurement is that several suppliers
are given the opportunity to tender and that the more the competition the
lower the prices. However, Pauw and Wolvaardt, allege that the
consideration of too many tenders will work against cost-effectiveness. For
example, it is not cost-effective for an institution to follow a procurement
process that costs R500 000 to obtain a product that is worth R100 000.
Competition also contributes towards identifying the role players in the
market and the various products available.

6.4.5 Cost-effective

A cost-effective procurement system is a system where an institution gets

the maximum benefit from the goods and services they required in the most
economical way. As indicated in section 4.3.5, cost-effectiveness also
implies that institutions should decide whether to procure from an outside
entity or to provide goods or services in-house. For instance, the question
arises if the institution has the required skills and capabilities inside the
organisation to develop a procurement policy or will an external supplier be
contracted to do the job. The institution should however also take into
consideration that while a contractor is paid for this type of service, the
internal knowledge base is often used to fulfil the contract obligations.

As already stated, public procurement in South Africa took place through the
auspices of the State Tender Board prior to 1995. The State Tender Board
Act 86 of 1968 provided for the establishment of the State Tender Board.
With the introduction of the 1996 Constitution and thereafter the PFMA in
1999, public procurement became one of the accounting officers’
performance responsibilities. In section 5.2, the researcher provided a

100
compressed summary of the four documents that formed the basis for
answering the research question. By comparing the pre- and post-PFMA
prescripts, the researcher is able to determine whether a procurement
framework was developed that moved away from a system that is quoted to
be rule-driven, outdated, cumbersome, undermining accountability,
inefficient, process-driven and dependent on process and procedure.

6.5 Interpretation of analysis

Whereas the Webb Report and CPAR failed to provide readers with items in
the ST36 and/or ST37 that directed their findings, the researcher will provide
the reader with factual information on which she basis her findings.

In the past accounting officers had to adhere to the ST36 and ST37 when
procuring goods and services and with the introduction of the PFMA they
are required to develop and implement their departmental procurement
policies in terms of the GCC and Guide. In terms of paragraph 1.2.2 and
1.6.2.2 of the Guide, bid documents must include the GCC and the
accounting officer should implement measures suggested in the Guide.
Paragraph 1.2.2, provides substance to guideline documents since
accounting officers may personally be held accountable if they do not
implement measures suggested in these documents. In chapter 5 the
researcher explained to the reader the three differentiations under which the
comparison between the pre- and post-PFMA would take place. She opts
for reflecting the information in a table format allowing the reader to at first
glance get a visual understanding of the context in which the reflected
information will be analysed. She has already discussed the comparison
between the definitions and for this reason she will only concentrate on the
remaining headings of the GCC. The analysis reflects:

 five headings where items appear in both the columns exactly the
same and same intention but differently stated. This is the case for
headings 2, 3, 8, 21 and 31

101
  a further five headings have items that are exactly the same as in the
ST36
 23 headings contain items that have the same intention but are
differently stated in the ST36
 only heading 27, “settlement of dispute” contains six items that are
reflected in the column different but the same heading also has one
item under same intention but differently stated
 ten of the GCC headings have no similarities to the ST36.

Due to the contextual similarities between the ST36 and the Guide, the
researcher provided a table reflecting these similarities. The Guide also
does not contain any differences but 21 similarities were found.

The comparison between the Guide and ST37 was not so much a parallel
analysis as an identification of items that she considered to be important
additions to public procurement and those items in the ST37 that should
have been included in the Guide. The researcher is of the opinion that the
National Treasury must stipulate consultation of the ST37 by institutions
when compiling their own procurement policies. In so doing, Minister
Gordhan’s request for improving procurement processes might be realised.

6.6 Answer to the research question

The innovations introduced during the period 1999 to 2005 mainly brought
about a SCM function for which accounting officers are held responsible for
the introduction and execution of an appropriate procurement system for
that department. Whereas public procurement was regulated by the State
Tender Board in terms of the ST36 and ST37, the post-PFMA introduced
the GCC and Guide to accounting officers to direct procurement. This
dissertation has shown that public procurement regulation takes place
through regulatory documents that mainly underwent a name change and
that the only changes are found in the reporting framework.

102
6.7 Recommendations

The researcher is of the opinion that Mr Gordhan’s call for a strong

procurement framework can be realised through existing structures within
institutions. The recommendations of the researcher in this regard are the
following:
 The accounting officer, chief financial officer and other members of
top management should annually attend SCM training. The
outcome of the training should form part of their performance
agreements and appraisal.
 The pre-PFMA procurement systems must be consulted and where
appropriate included in post-PFMA policy documents.
 Departmental procurement and provisioning should not be over-
regulated through lengthy procedures that do not add value to
service delivery.
 Procurement practitioners from various government institutions
should meet at least annually to share knowledge and experiences.
 Public institutions should be technologically connected to cross
reference contractors’ past performance and to confirm
shareholding status with the Department of Trade and Industry.
 Government initiatives to address unemployment and economic
development of previously disabled groups are sabotaged by public
institutions that do not pay contractors promptly within 30 days. A
public office can be an office of trust when information is made
public of those instances where government institutions played a
role in the liquidation of contractors.
 To ensure fairness and transparency in the selection process,
institutions should hold, where practical, debriefing sessions for
unsuccessful tenderers.
 Not only must public institutions develop a procurement policy but
they should also develop procedural manuals that complement the
policy. Procedural manuals contribute towards transparent systems
and informed decision-making.

103
  A stronger message of accountability will be communicated when
the political will to combat fraudulent procurement practices are
reflected through legal actions and not only internal departmental
processes.
 Not all officials are corrupt and not all procurement processes are
questionable. Society should also be informed of “success stories”
that will motivate officials in delivering goods and services to the
best advantage of society.

6.8 Conclusion

In this chapter the researcher provided a summary of the findings of the

study. This was done by way of a compressed discussion of procurement
and supply chain management, an overview of the literature contributions in
terms of South Africa’s public procurement process, and a summary of the
five constitutional principles. She also provided an interpretation of the
analysis conducted in chapter 5 in section 6.5. This chapter also presents
the answer to her research question. The South African legislation and
literature contributions that she made use of stretches over a period of thirty
nine years, thereby allowing her to answer her research question based on
historic and current public procurement regulation and practises. The
researcher also provided recommendations that, according to her, are
valuable towards establishing a strong public procurement framework.

Democratic principles can be realised when executive actions and decisions

are focused on the foundation of “by the people for the people” Such a
foundation will contribute towards a procurement framework where society
is the sole beneficiaries of public goods and services.

104
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