PROCUREMENT THROUGH DEVIATIONS Presentation to SCOPA | OCPO, National Treasury | 5 September 2017

SCM Legal Framework The Constitution. The Public Finance Management Act (PFMA) and its Regulations. The Municipal Finance Management Act (MFMA) and its Regulations. The Preferential Procurement Policy Framework Act (PPPFA) and its Regulations. Prevention and Combating of Corrupt Activities Act. Prevention of organised Crime Act. Modernise People Culture Value for money Service delivery

Principles from Section 217 of the Constitution Fairness Equity Transparency Competitiveness and Cost-effectiveness. The above principles must be applied to attain value for money and fair treatment of suppliers. Bid process starts with the public advertisement of a bid. Modernise People Culture Value for money Service delivery

Procurement through deviations Provided in Treasury Regulations 16A6.4 “If in a specific case it is impractical to invite competitive bids, the accounting officer or accounting authority may procure the required goods or services by other means, provided that the reasons for deviating from inviting competitive bids must be recorded and approved by the accounting officer or accounting authority.” National Treasury noted that some accounting officers and accounting authorities are abusing Treasury Regulations 16A6.4 and issued Instruction note 6 of 2007. Modernise People Culture Value for money Service delivery

Procurement through deviations NATIONAL TREASURY PRACTICE NOTE 6 OF 2007/2008 Despite Treasury Regulation 16A6.4 being intended for cases of emergency or where goods and services are available from sole service providers, it has come to light that institutions are deliberating utilizing this provision to circumvent the required competitive bidding process in order to, among others, enter into contractual commitments or incur expenditure at the end of a financial year with the view to avoiding the surrenderring of unspent voted funds to the National / Provincial Revenue Funds. An effective system of supply chain demand management requires an accounting officer or accounting authority to ensure that the resources required to support the strategic and operational commitments of an institution are properly budgeted for and procured at the correct time. Planning for the procurement of such resources must take into account the period required for competitive bidding processes. It must therefore be emphasized that a lack of proper planning does not constitute a reason for dispensing with prescribed bidding processes. Modernise People Culture Value for money Service delivery

Procurement through deviations NATIONAL TREASURY PRACTICE NOTE NO 8 OF 2007/2008 Should it be impractical to invite competitive bids for specific procurement, e.g. in urgent or emergency cases or in case of a sole supplier, the accounting officer / authority may procure the required goods or services by other means, such as price quotations or negotiations in accordance with Treasury Regulation 16A6.4. The reasons for deviating from inviting competitive bids should be recorded and approved by the accounting officer / authority or his / her delegate. Accounting officers /authorities are required to report within ten (10) working days to the relevant treasury and the Auditor-General all cases where goods and services above the value of R1 million (VAT inclusive) were procured in terms of Treasury Regulation 16A6.4. The report must include the description of the goods or services, the name/s of the supplier/s, the amount/s involved and the reasons for dispensing with the prescribed competitive bidding process. Modernise People Culture Value for money Service delivery

Procurement through deviations INSTRUCTION NOTE 32 OF 2011 It has, however, come to light that improper supply chain management practices at institutions are seriously undermining sound financial management, weakening the spirit and ethos of the PFMA and ultimately eroding scarce resources that are intended to improve service delivery. These improper practices include the circumvention of official competitive bidding processes in order to, among others, enter into contractual commitments or incur expenditure at the end of a financial year so that the surrender of unspent voted funds may be avoided. Modernise People Culture Value for money Service delivery

Procurement through deviations INSTRUCTION NOTE 32 OF 2011 Accounting officers of departments and constitutional institutions must submit to the relevant treasury by 30 April of each year, a procurement plan containing all planned procurement for the financial year in respect of the procurement of goods, works and/or services which exceed R500 000 (all applicable taxes included). This procurement plan must be approved by the accounting officer or his or her delegate prior to its submission. Modernise People Culture Value for money Service delivery

Procurement through deviations INSTRUCTION NOTE 32 OF 2011 The absence of a prescribed threshold for the expansion or variation of orders against the original contract has, however, led to gross abuse of the current SCM system. In order to mitigate against such practices, accounting officers and authorities are directed that, from the date of this instruction note taking effect, contracts may be expanded or varied by not more than 20% or R20 million (including all applicable taxes) for construction related goods, works and/or services and 15% or R15 million (including all applicable taxes) for all other goods and/or services of the original value of the contract, whichever is the lower amount. The relevant treasuries may, however, decrease these thresholds for institutions reporting to them. Any deviation in excess of these thresholds will only be allowed subject to the prior written approval of the relevant treasury. Whilst provision is made for deviations, it is imperative to note that requests for such deviations may only be submitted to the relevant treasury where good reasons exist. Modernise People Culture Value for money Service delivery

Procurement through deviations Instruction note 3 of 2016 Modernise People Culture Value for money Service delivery

Procurement through deviations Instruction note 3 of 2016 Modernise People Culture Value for money Service delivery

Procurement through deviations The purpose of the rules is to reduce procurement through deviations Are the reasons that are given for procurement through deviations justified? Are all the institutions reporting deviations? Modernise People Culture Value for money Service delivery

Abuse of quotation processes Cover quoting Inflating prices Rotation of suppliers not done Market research not done Splitting procurement to avoid competitive bidding Expansions of amount procured through quotations Modernise People Culture Value for money Service delivery

Abuse of bid processes Specifications tailored to favour certain suppliers. Evaluation criteria changed during evaluation and adjudication of bids. Suppliers appointed at exorbitant prices. Market research not done. Deviations used to avoid competitive bidding. Variations used to avoid competitive bidding. Modernise People Culture Value for money Service delivery

Review of pre tender violations

Review of tendering stage violations

Review of post tender stage violations

Where fault lines lie Where is the rule of law? Where the rule of law is strong, people uphold the law not out of fear but because they have a stake in its effectiveness. Some people will uphold the law because of fear of being caught and face consequences. Wrongdoers are not receiving criminal or disciplinary penalties that they deserve to receive, they are not facing social sanctions and/or punishments from professional and trade associations. Modernise People Culture Value for money Service delivery

Where fault lines lie Is there any accountability? Accountability requires all stakeholders to play their active role: political will should be the norm rather the exception. Citizens, public bodies, interest groups, civil society, the courts and the media must insist in getting explanations from the leaders(both political and administrative) Modernise People Culture Value for money Service delivery

Institutions must reduce procurement through deviations. Wayforward Institutions must reduce procurement through deviations. Institutions must apply the principles of fairness, equity, transparency, competitiveness and cost effectiveness when procuring through deviations. Institutions must advertise bids six months before the expiry of the contracts. Modernise People Culture Value for money Service delivery

THANK YOU We have an amazing opportunity to influence and direct the national capacity building strategy to address the challenges experienced in finance, risk management and internal audit. This is an opportunity to be innovative and to present our ideas. I dream of an effective, efficient, high-performance orientated public service that is flexible, responsive and progressive in their systems, policies and practice. What needs to be done?