Public Procurement Bill: negotiating mandate; Upstream Petroleum Resources Development Bill: final mandate

Meeting report

Public Procurement Bill: National Treasury response to submissions
Mr Willie Mathebula, Chief Director: Contract Manager and Ms Empie Van Schoor, Chief Director: Legislature at National Treasury gave a summary of Treasury responses to public submissions on the Bill (see document). There were submissions from the African Procurement Law Unit; Public Affairs Research Institute; City of Cape Town and Joint Strategic Resource (JSR).
 
1. There was a concern that the separate Bill could potentially detach procurement from the integral components of revenue, expenditure, assets, and liabilities that are governed by financial mechanisms and controls.
Response: It should be noted that the PFMA and MFMA on the one hand, and the Bill on the other hand, are provided through recognizing the role of accounting officer/authority in making procurement decisions, and also proposing in the Schedule to the Bill, amendments to the PFMA and MFMA. The accounting officers and authorities of procuring institutions will remain responsible for both procurement and the other functions mentioned.
2. The Bill does not effectively meet the standards set by section 217(1) in reconciling the requirements for transparency, competitiveness and cost-effectiveness with those of fairness and equity.
Response: Various provisions of the Bill deal with the five principles and will be augmented by the regulations. Importantly, the principles in section 217(1) must also be adhered to together with other provisions of the Constitution, which includes section 217(2) and (3), and sections 195(1)(b) and 216. These provisions are referred to in the Preamble and the objects (clause 2). The Bill, read together with regulations, will direct procuring institutions on how to give effect to these principles.
3. The dispute resolution process proposed in the Bill is administratively complex and impractical in the public procurement environment, it obscures lines of accountability and seemingly appropriates judicial powers to the proposed Tribunal.
Response: The dispute resolution procedures are aimed at saving costs and time. The remedies are clearly set out. Tribunals are provided for in existing legislation (e.g. the Financial Services Tribunal established by the Financial Sector Regulation Act, 2017 and Tribunal established by the Social Assistance Act, 2004 for appeals against SASSA decisions). It is not a proposed appropriation of the judicial powers but a remedy to be used before seeking judicial review.
4. This approach conflicts with the legal doctrine of “functus officio," which dictates that administrative decisions made by delegated authorities are final and unalterable once rendered.
Response: This doctrine is overridden by legislation. The purpose is to limit the need to go to court (costly) to rectify such decisions.
5. The Procurement Bill seeks to either remove or curtail the powers of Provincial Government in respect of these functional areas and that, too, is unconstitutional.
Response: The Bill is national legislation and does not in any way curtail the powers of any provincial government. The Bill is premised on sections 195, 216 and 217 of the Constitution. Therefore, it cannot be said to be unconstitutional.
6. The Broad-Based Black Economic Empowerment Act (BBBEE Act) is applicable to preferential procurement in that it regulates black economic empowerment
Response: Apart from the proposed amendments to the B-BBEE Act for purposes of alignment, as per s9, 10 and 13P of the B-BBEEA, the Bill does not tamper with the B-BBEEA provisions
7. Subcontracting as condition of bid
Response: There is a clear distinction between clause 19 and clause 24. It is accepted that there would be areas where subcontracting as a condition of contract is required (where this would be used as an offset requirement). However, clause 19 intentionally provides for subcontracting as a condition of bid as a measure for preference, since the bidder would be required to state upfront that that bidder is willing to subcontract, and the requirement is linked directly to the provision in section 217(2)(b) of the Constitution.
8. The Tribunal has the potential to paralyse procurement in the public sector. No provision is made for the maximum period within which a ruling must be made.
Response: Proposed to include in clause 48 that the Tribunal rules must provide for a time frame within which an order must be made, which may only be extended with the approval of the Chairperson of the Tribunal.
9. Provinces and Municipalities may lose their grant funding during the standstill period which will impact service delivery. Significant delays may also result in the need for more costly solutions.
Response: There are also far-reaching implications and risks in proceeding to conclude a contract which may later be set aside. However, clause 55(2) provides that emergency procurement may take place while such bid is under reconsideration of review.
10. PFMA s 3(3) and MFMA s 3(2) have similar trumping provisions that may lead to stalemates between different legislative schemes operating in the context of public finance with no way of resolution.
Response: The trumping clause relates to inconsistency with other legislation in as far as it deals with procurement as provided for in the Bill. The Bill seeks to provide a single regulatory framework for public procurement

There were constitutional concerns that Bill extends beyond the section 217 of the Constitution requirement for a framework for preferential procurement policy; that set-asides are unconstitutional and that the Bill infringed the constitutional status and powers of provincial and local government. National Treasury provided responses to these plus:
- Public Procurement Office must be independent and not be part of NT
- Clarity on roles of Public Procurement Office, Provincial Treasuries and procuring institutions
- Concern about centralising decision-making on procurement
- Bill does not do enough for transparency, accountability and anti-corruption measures
- Bill should incentivise whistle-blowers and provide for protection
- How will Bill relate to other Acts such as PAJA, PSA, CIDB Act, Companies Act, B-BBEEA.
- Tribunal and dispute resolution mechanism
- Too many areas are to be prescribed by regulations
- Financial implications concern
- Investigative powers of Public Procurement Office

Discussion
Mr A van der Westhuizen (DA) asked what the tribunal membership would be. According to his reading of the Bill, the minimum number of members might be three. There is no maximum number as the Minister may appoint as many members as he sees fit, which may mean that the tribunal could consist of 100 members if the Minister sees fit. He asked if there is a limit to ensure that the tribunal is effective, not too costly and would be able to deal swiftly with cases and not cause delays – as some people have expressed concerns about.

Ms N Nkondlo (ANC) wanted clarity on the relationship between the Bill and other legislation, particularly for construction. Is there an indication on how soon the regulations would be developed? While the regulations are not developed, what validity does the Bill have? She had a concern about the potential for high-end construction companies taking on too many large projects, which could affect the timing and delivery of infrastructure projects. Are there measures to punish bidders who do not deliver on time? Delays have service delivery implications for government and public infrastructure projects. There is a gap in the legislation for such measures and raised concern about the impact of such bidders on government.

Ms Nkondlo questioned the Bill's constitutionality as South Africa has adopted a fiscal decentralization approach in budget allocation and spending which allows the three different spheres of government to have distinct powers but work together. Anything that seeks to create a void amongst these three spheres is in conflict with the spirit of the Constitution. The law-making process in South Africa must not create separate spheres of government, as that is not in line with the Constitution. She sought clarity on these constitutional concerns.

National Treasury response
Ms Van Schoor replied on the tribunal that the Minister must first appoint a retired judge who will be the chair and a sufficient number of people with 10 years’ experience in depending on the process and number of applications received. The tribunal chairperson will constitute a panel for each application which is now dealt with in clause 47 of the Bill. That panel includes lawyers and procurement specialists with a limit on the number of members. The proposal suggested that panels must have a provincial presence, reducing the cost of appointing too many people.

On the constitutional concern, national legislation must establish uniform norms and standards about expenditure control and transparency, which must be enforced by National Treasury. The presentation mentioned procurement rules as part of the uniform norms and standards. The Bill aims to establish a framework for state organs to implement procurement policies in national legislation. It will outline general procurement requirements and regulations, as well as preferential procurement regulations. Decision-making in national, provincial, or local government is left to institutions and not centrally determined. This aligns with existing provisions in the Public Management Act (PFMA) and Municipal Finance Management Act (MFMA), but is constitutionally limited to provinces and municipalities.

Mr Mathebula addressed the Bill's relationship with the Construction Industry Development Board (CIDB) Act and other legislation, stating that the Bill has a schedule providing for the amendment of parts of Acts or to repeal them. The Bill will be implemented in a phased manner.

On the critical matter about the impact of contractors running out of funds for infrastructure delivery, the proposal should be left to Parliament for a decision. Treasury has made proposals for amendments to the CIDB Act to align it. There are limitations in the construction grading system in the country, where contractors are categorized into grades one through six. It results in large companies taking on more projects than they can handle, both internationally and domestically.

He suggested that the grading system should be improved to allow a larger pool of contractors for high-value projects, reducing the number of contractors who take on too many projects. The current regulatory regime does not have a provision for non-performance. There needed to be a more comprehensive approach to addressing this.

He discussed the current regime compared to the Bill which allows procuring institutions and government departments to take action against non-performing contractors based on their contractual obligations. If a contractor submits a bid and the contract is awarded, the organ of state can take action if there is inadequate performance not due to circumstances beyond their control. He suggested that a contract should state that if a supplier or contractor fails to perform on a project, the organ of state can cancel the contract and take action against the non-performer.

Follow-up questions
Mr van der Westhuizen emphasized that he had not heard that there was a limit on tribunal member numbers. It seems as if it would absolutely be up to the Minister to decide how big the tribunal will be as well as when subcommittees or sub-tribunals meet.

He expressed concern about the use of "target" in South African legislation. The term has become an abuse of the original meaning of "target" and should be referred to as threshold. He asked for the legal adviser's definition of target and how it reconciles with how the dictionary defines target. On the requirement for procuring institutions to prescribe thresholds and conditions, he believed that "target" should be used more appropriately.

National Treasury response
Mr Mathebula explained target in the context of achieving specific goals. The set-aside provision is not the target, as it has been exhausted. The Minister believes that the targets have been met, either in terms of numbers or the failure of contracts set aside for specific categories. Threshold in this context is more related to failure, as linked to Clause 25 of the Bill. Clause 25(2) says the Minister may determine this by a notice in the gazette on procurement threshold. The Minister may set certain thresholds for specific categories of procurement that are linked to value. A target in this context would relate to a particular number.

Western Cape Provincial Parliament comments
Ms Mpho Khoele, Legal Advisor: Western Cape Provincial Parliament, said she was inclined to agree with the Member when looking at the words target and threshold. In her view, threshold would be more appropriate because when prescribing a threshold, it is a point or a value that indicates whether or not something is achieved. It is difficult to determine if a target's performance is not reached and she questioned the proper articulation of targets.

She raised concerns about regulations, as they are a delegated law-making power by legislatures to the minister by which to implement acts.

Ms Nkondlo stated that page 27 of the socio-economic assessment provided by Treasury, gives an explanation about targets. There is a logical framework used by departments across the country. Targets will always be set against benchmark performance based on the resources provided. It would be easier in legislation to have a set of definitions to clarify targets and thresholds and how they are applicable. It is important to go back to what the problem statement is and what it is that the procurement framework seeks to correct when addressing targets.

The problem statement should be read in context because legislation is not just abstract. It seeks to respond to a particular reality in the South African economy. She asked if National Treasury has done benchmark studies on procurement to see how other countries use public procurement to respond to their own domestic realities and interests.

Provincial Treasury response
Ms Leanda Pietersen, Director: Supply Chain Management (SCM) Legal Advisory, stated that a target is something that is aimed at being achieved. When a target is to be set or prescribed, the Bill makes provision that the Minister must consult with the relevant minister whose portfolio has categories that the target falls under before it is set. She explained that when something is prescribed by regulation, the process is more careful as it first requires consultation with the relevant ministers, a compiled statement that sets out what the regulation seeks to achieve, the impacts, the public comment process, and the parliament inspection that must take place, which has not been there before when regulations were set for preferential procurement.

South Africa is one of the few countries with a procurement provision in the Constitution. One of the judges in the Afribusiness Constitutional Court case said there must be an emphasis in Section 217 of the Constitution which authorizes the state to, in certain circumstances, exclude persons who did not suffer discrimination under apartheid in favour of those who were discriminated against. The exclusion constitutes an effective tool in the hands of the state to redress the injustices of the past regime and to heal the hurt in suffering.

Mr Mathebula answered Ms Nkondlo that there is a process currently under way in National Treasury called Methodologies to Assess Procurement Systems (MAPS), a tool to assess and improve one's procurement system driven by the OECD with the support of the World Bank.

Ms Van Schoor explained to Ms Khoele that the Constitution enables Parliament to do that because it is proposed national legislation that the Executive asked Parliament to pass.

Negotiating mandate considerations
The Chairperson stated that after the discussion with National Treasury, she would like to register the proposal to use 'threshold' rather than 'target' under Definitions and prescribe the number of tribunal members. The Bill could possibly minimize the Minister's powers to prevent overreach. She stated that requesting benchmarking conducted by other national treasuries could be vital when it comes to procurement.

Mr van der Westhuizen proposed that the Committee state if it opposes, supports, or supports with conditions the Bill in the negotiating mandate. He said that they do not support the Public Procurement Bill in its current format.

Mr Sileku seconded Mr van der Westhuizen not to support the Bill.

Ms Nkondlo said that she supports the Bill.

The Chairperson asked Members what the proposals should be for substantive changes.

Mr Sileku expressed his dissatisfaction with the time given by the NCOP, which is not in line with the rules that the provincial legislature must be given about eight weeks to deal with legislation. The Western Cape was given less than three weeks to deal with legislation, which could impact their lives. He acknowledged the time constraint and asked for Ms Nkondlo to support the negotiating mandate.

The Chairperson encouraged Members to add to the negotiating mandate.

Mr van der Westhuizen agreed about the rushed legislative process in drafting the national procurement legislation which raised substantive concerns. He believes that the prescribed target may be an anomaly, and the power given to the Minister is a concern, as the tribunal will be appointed by the state, potentially affecting its impartiality. He criticized this proposal for not being as fair and impartial as it should be, as the tribunal may be influenced by government's policies. He criticized the Bill's focus – it should rather be on efficiency in public procurement, aiming to enhance competition among suppliers rather than narrowing it down. He criticized the Bill for excluding certain individuals and entities from participating in state procurement processes, such as regional manufacturers. He criticized the Bill for not serving the best interests of South Africa as well as the constitutionality concern as he disagreed with Treasury's interpretation of Section 217 of the Constitution.

Ms Nkondlo supported the Public Procurement Bill as it is crucial to uphold the intention of the Constitution and address the structural problems identified in the country's economy. She stated that the Bill aims to enrich the public participation framework and ensure policy certainty for public procurement. Public procurement is not only for the markets participating but also for the state procuring goods and services. The Bill is essential for addressing the structural problems identified in the South African economy, which have led to a dependence on international markets and a lack of localization and local content. Public procurement is a critical tool as can be seen in the United States and other developed economies where it has been used to deliver the interests of the country.

She said there should be more clarity on definitions such as 'set-aside' to ensure that the Bill is constitutional and appropriate for the current context. It was important to consider inputs from procurement practitioners to enrich the Bill. The Bill is needed to stabilize public procurement, supply chain practices and provide policy stability. It is essential to ensure policy certainty and the Bill cannot be delayed any further.

The Chairperson acknowledged the progressive clauses in the Bill, which aim to improve the value of raw materials. She acknowledged the need for further work on the constitutionality, over-reliance on regulations, judicial review, and ministerial over-reliance in the Bill.

Mr van der Westhuizen discussed the constitutional principles of Section 217(1) which are addressed in the objects and preamble of the Bill. Referring to the principles and legislating in line with them is different from addressing the actual clauses in the legislation. He referred to the current state of the ports and Eskom where public procurement has increased electricity prices, impoverishing most South Africans. He believes that the public procurement document does not predict that electricity prices will decrease due to greater competition in the market. The disadvantages for South Africans should be considered when attempting to abuse public procurement for sector-specific gains. He acknowledged the importance of public procurement but believed that the objectives set out in the Bill may not be achieved if it is adopted as an Act of Parliament.

Ms Khoele emphasized the need for a reasonable opportunity for public participation. She highlighted public involvement as a constitutional entitlement. She stated that submissions from the intended beneficiaries of pre-qualification criteria are few and far between. She attributed short timeframes and lack of resources as the reason for the lack of submissions from businesses within that category.

Ms Khoele raised concerns about the compliance provision for entering and searching premises, which is similar to a criminal search rather than compliance. She explained that the Property Practitioners Act, which allows inspectors to conduct inspections without prior notice, is more in line with the Criminal Procedure Act.

Mr Sileku highlighted the outcry from disadvantaged communities and upcoming businesses about lack of funding and suggested that the Bill should focus on assisting upcoming suppliers and ensuring local suppliers are included. He expressed concern about the potential monopolization of powers by one sphere, arguing that all spheres should have their own procurement role and that there should not be a superior sphere.

Ms Nkondlo stated that the discussions focus on improving public procurement quality and addressing the number of people involved in the process. National Treasury should review other legislation, such as the Construction Industry Development Board (CIDB) Act to ensure it aligns with this main procurement framework. The focus is on addressing energy and renewables, as well as ensuring that different pieces of legislation are in harmony with the main procurement framework. She emphasized the importance of ensuring the state does not lose money due to price issues and noted the concentration of businesses in industries like retail, construction and property. The focus is on addressing the needs of all stakeholders to ensure a more efficient and effective public procurement system.

Negotiating Mandate on Public Procurement Bill [B18B-2023]
The draft negotiating mandate was displayed for the Committee to reflect on and amend.

Mr I Sileku (DA) stated that he is happy with the negotiating mandate. Mr van der Westhuizen seconded the negotiating mandate.

Final Mandate for Upstream Petroleum Resources Development Bill [B13B-2021]
The Chairperson stated that the Committee did not support the Bill but there was a minority view. It had made approval subject to several proposed amendments.

Mr van der Westhuizen (DA) commented that none of the Western Cape proposed amendments were accepted by the NCOP Select Committee, leaving them no other position but to continue not to support the Bill.

Ms Nkondlo (ANC) said she supported the Bill.

Mr Sileku asked if they had not provided the National Council of Provinces (NCOP) with proposals during the negotiating mandate. He stated that some provinces received comments that none of their amendments were taken into consideration, while the Western Cape has not received any comments. He is sticking to their negotiating mandate of not supporting the Bill.

Mr van der Westhuizen (DA) reflected that the NCOP did not consider any of their proposed amendments and did not even note the Western Cape proposed amendments to the Bill.

The final mandate was read out: The Standing Committee having considered the subject of the Upstream Petroleum Resources Development Bill [B13B-2021] (NCOP), referred to it in accordance with Standing Rule 217, recommends that the House confer on the Western Cape delegation in the NCOP the authority not to support the Bill. In accordance with Standing Rule 90, the African National Congress expressed its minority view to support the Bill.

Mr G Brinkhuis (AI Jama-ah) stated that the minority view should not be included in the negotiating mandate and he supports the Bill.

Mr Sileku proposed and Mr van der Westhuizen seconded approval of the final mandate.

Resolutions
The Chairperson stated that her resolution is to request the benchmark information which Ms Nkondlo raised with National Treasury.

Mr van der Westhuizen thanked the Committee support staff and asked about future committee meetings.

The Chairperson replied that the Committee still has to meet to give the final mandate on the Public Procurement Bill.

Ms Nkondlo asked the about the process to be followed for the two members of the public representing different organizations who would like to present to the Committee.

The Chairperson requested more information on the members of the public who requested to present some matters.

She thanked Members for their participation and adjourned the meeting.