Light cast on Preferential Procurement Regulations 2022

Preferential Procurement Regulations

Sean SimNavigating the legislative environment applicable to state procurement is no easy task and arriving at a workable understanding has for many, since the 2017 Preferential Procurement Regulations (“2017 Regulations”) were set aside, taken on the form of trying to solve a five-sided Rubik’s cube. Sean Sim, Director of Sim & Buzo Attorneys in Johannesburg, enlightens us in this article.

This task has not been made any simpler with the promulgation of the Preferential Procurement Regulations, 2022 (“2022 Regulations”) with parties holding diametrically opposing views, each claiming that the 2022 Regulations supports their narrative of as to what the future holds for organs of state when it comes to procurement.

Central to this debate is as to whether the 2022 Regulations would allow organs of state the freedom to procure goods and services without any regard being had to the broad-based black economic empowerment (BBBEE) requirements set out in the Broad-Based Black Economic Empowerment Act 53 of 2003 (“BBBEE Act”) and the requirement for local content. Fortunately for me, in this instance, and in providing some much-needed clarity, I need only concern myself with the law and not what various interest groups would want the law to be.

That being said it is perhaps helpful to start with the following common understanding being that whilst we are all experts, as we see it, when it comes to spending our money, we do not trust others to spend our money with the same degree of care and diligence that we would apply.

Without wanting to oversimplify matters this was not a point that was lost on the architects of our constitution who stated in Section 217 of the Constitution that “institutions identified in national legislation” (“organs of state”) are required, when spending our money, to procure goods or services in accordance with a “system which is fair, equitable, transparent, competitive and cost effective”

Importantly the Constitution goes on to state that in giving effect to the above overarching requirements, organs of state are not prevented from implementing procurement policies which would provide for –

  • categories of preference in the allocation of contracts; and
  • the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

Finally, and on the subject of procurement, the Constitution went on to clarify that national legislation would be promulgated and this national legislation would prescribe a framework for dealing with these procurement parameters.

So far, as I am sure you will all agree, there can be no debate about what our Constitution requires and as to what it intended.

In prescribing the framework as set out above the legislature promulgated the Preferential Procurement Policy Framework Act, 2000 (“PPPFA”).

Whilst the saying “dynamite comes in small packages” is not often used in a legal context it is certainly applicable in this instance, as the content of the four pages that make up PPPFA is at the very core of the procurement process that is to be followed by organs of state.

This is so as the PPPFA provides, in very simple terms, the framework for the implementation of every organ of state’s preferential procurement policy by requiring that such policy must follow a preference point system. In terms of this system tenders must first be assessed in accordance with a preference point system where procurement decisions are driven initially by price, with 80 to 90 of the available points (depending on the size of the tender) being allocated to price and the remaining, either 10 or 20 points, being allocated to specific goals.

As to these specific goals these must, in terms of the PPPFA, be measurable, quantifiable, they must be monitored for compliance and they may include –

  • contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability (“transformational goals”); and
  • implementing the programmes of the Reconstruction and Development Programme as published in Government Gazette (“RDP goals”).

On a plain reading of the PPPFA it is clear, and this has now been confirmed by the Constitutional Court, that each organ of state will be required to set its own specific goals and those goals will, from a points perspective, be worth either the 20 or 10 points as explained above.

If these are the clear rules of the game, you would be right to ask where the confusion has come from. The answer to this is that the 2017 Regulations allowed organs of state to disqualify tenderers without first considering their tender price and other conditions on the basis that they did not comply with certain pre-qualification criteria.

The inclusion of the pre-qualification criteria was challenged, and that matter was finally determined by the Constitutional Court which ruled that-

  • the pre-qualification provisions of the 2017 Regulations were neither necessary nor expedient to give effect to the PPPFA; and
  • as these prequalification criteria could not be separated from the 2017 Regulations as a whole, the 2017 Regulations as a whole were set aside.

Despite what may have been conveyed in the media this ruling had absolutely nothing to do with either broad-based black economic empowerment or the requirement for local content.

The 2022 Regulations have now been promulgated and these regulations have effectively “pushed the reset button” by defining the “specific goals” on very much the same basis as they are defined in the PPPFA as opposed to focusing only on BBBEE requirements.

The specific goals are defined as the “specific goals as contemplated in section 2(1)(d)of the [PPPFA] which may include contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender and disability including the implementation of programmes of the Reconstruction and Development Programme as published in Government Gazette No. 16085 dated 23 November 1994”.

The position as it now stands, as I see it, is that organs of state have the option to either make the decision to allocate all of the points capable of being allocated in relation to their transformational goals, or they could elect to focus on certain transformational goals combined with RDP goals.

To the extent that the latter option is adopted by the organ of state, in such event the specific goals would need to be measurable and quantifiable, and they would certainly, when dealing with historically disadvantaged persons, need to be aligned with our prevailing BBBEE legislation which provides for the only real mechanism for measurement in this regard.

Given the above I am of the view that there is in reality no basis to support the argument that organs of state now have the freedom to procure goods and services without any regard being had to BBBEE, and that practically speaking, given the rigorous requirements on the organ of state when adopting a blended approach (being transformation and RDP) that for the most part, organs of state will elect to allocate all of their “specific points” to BBBEE.

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