South African Public Procurement – A Work in Progress

Despite some leaps forward in recent years, South African public procurement is still suffering from the same issues.

“Despite the reform processes in public procurement and the employment of Supply Chain Management (SCM) as a strategic tool, there are predicaments in South African public procurement practices”.

This was one of the observations in a report by two leading academics at the University of South Africa in 2012. They noted, “For example, there is non-compliance with procurement and SCM-related legislation and policies as well as tender irregularities.”

You could say that not a lot has changed, South African public procurement still has some predicaments.

The Last Few Years

Since 2012, we have seen the appointment of a Chief Procurement Officer, Kenneth Brown, who is responsible for overseeing the entire SCM operation. His role is to ensure that the procurement of goods, services and construction works is fair, equitable, transparent, competitive and cost effective, and in line with the Constitution and all relevant legislation.

This in itself is a big ask as there are many laws, guidelines and regulations to adhere to. His portfolio includes central and provincial governments, municipalities and state-owned enterprises.

A new initiative is an e-tender portal and the creation of a centralised database of approved suppliers. This is a noble effort to fight corruption and make government procurement more efficient and cost-effective. The system, where all tenders are advertised, is also designed to electronically verify a supplier’s tax and black employment equity status, as well as to uncover any government employee attempting to do business with the state.

In the 2014-2015 tax year, the public sector spent >R500-billion on goods, services and infrastructure. The Government itself has admitted that at least R30-billion of this was lost to corruption. In 2015 the Treasury took a bold step of undertaking a Supply Chain Management Review on the status of SCM in South Africa and found it wanting.  This was the first attempt at assessing the situation since 2004.

The 2015 Supply Chain Management Review

The Treasury should receive kudos for highlighting its own shortcomings and imperfections, and providing some glimmer of hope of improvement.

The Review acknowledged that:

• SCM across South Africa is highly fragmented. This makes it difficult for government to obtain maximum value from the purchasing of goods and services.
• It needs to improve skills, processes and systems which are critical for a well-functioning SCM system.
• It is dogged by “constant allegations of corruption and inefficiency”.
• Key problems are: inexperienced leaders, high staff turnover rates, confusion about roles and responsibilities, political interference and the red tape for small and medium businesses.

So what is the plan?  

The big plan is to replace all the legacy systems, more than 30, with just one. This will be an integrated financial management system (IFMS) which will include the central supplier database. This will make data mining possible, and will provide more transparency into bid awards, a concept that has not been well understood in government circles up to now.

The intention is to centralise government contracts for categories such as:

• Banking services;
• Information Communication Technology (ICT) services;
• Infrastructure;
• Consulting services;
• Security services;
• Air travel and accommodation;
• School textbooks and stationery;
• Healthcare equipment; and
• Leased buildings.

Technology will take us part of the way

Investment in technology, especially an e-procurement solution, has the potential to improve SCM efficiency and effectiveness considerably. Currently, the different systems result in fragmented and unreliable data, inconsistent processes, varying compliance levels and ineffective results.

It is not straightforward though. South Africa has a complex and unique system of preferential procurement policies to protect and advance previously disadvantaged people. These variables have to be integrated into any decision making software.

The many challenges can be grouped into these categories:

• managerial, compliance and monitoring issues
• lack of knowledge, skills and capacity
• inadequate control systems
• fraud and corruption
• fragmented spend and lack of transparency

Comparisons with other countries

South Africa is not alone in its aspirations to do better. The UK has just implemented the Public Contracts Regulations which adds another dimension and complexity to Government procurement in UK, and brings practice into line with European Union regulations. One objective is to make procurement across EU countries easier and increase transparency.

A bill was introduced recently to promote the appointment of a Chief Procurement Officer for the United States. However, it was not passed into law due to the start-up costs, despite projected savings of 10 times the investment. It just goes to show that even developed markets have their problems.