Department of Defence REPUBLIC OF SOUTH AFRICA

The Procurement Process Presentation to the Portfolio Committee on Defence 08 October 2009

Contents Introduction Procurement Process Procurement System Anti-corruption and Transparency

INTRODUCTION

Aim To orientate the Members of the PCD to the Procurement process within the Department of Defence

Definitions Authorising entity: A board or committee established to monitor compliance to procedures and to authorise bid submissions. Delegan: a person or entity who has powers delegated upon them. JIT: Just-in-time; concept of rapid deliveries and inventory reductions. Material Value Chain: the process, system and infrastructure pertaining to movement and handling of material from requisition to disposal

Definitions…Cont. Procurement entity: DoD establishment whose primary function is to procure or sell goods / services SCM: supply chain management TQM: total quality management; concept of continuous improvement with emphasis on quality throughout the supply chain Transversal contracts: centrally-managed contracts applicable to more than one government department.

Scope The content of this presentation only applies to the GDA [or FMS folio 01] procurement transactions, i.e. two thirds of the DOD budget.

PROCUREMENT PROCESS

Procurement Objectives To support the Material Value Chain in accomplishing optimal materiel readiness To ensure delivery of cost-effective quality services to services / divisions through good procurement practices To align procurement systems and processes with DoD Strategic Objectives To ensure compliance of the procurement execution process with the GRC framework To develop partnership arrangements with suppliers, and other procuring organisations and explore opportunities for SC collaboration To promote the principles of BBBEE, industry development and environmental sustainability

Procurement Prescripts RSA Constitution Sect. 217: Execute Procurement Function through a system that is fair, competitive, transparent, equitable and cost-effective. PFMA Sect 38(1)(a)(iii): Have an appropriate procurement system which is fair, competitive, transparent, equitable and cost-effective.

Procurement Prescripts PPPF Act 5 of 2000 National Treasury SCM Practice Notes DODI No Acq/2/99/Edition 2 JDP No Acq/00003/04/Edition 1 Secretary for Defense Delegations BBBEE Act

Procurement Process Flow Proc Unit/Centre Proc Committees End User Depot/Unit Finance Initiate reqs Draw Specs Budget Verify Req & Specs Draw up PQ/Bid Doc’s & Advertise Receive Goods Print Receipt Voucher (Quality check) Verify Bid doc Invoices Receipt Voucher Evaluation Acceptance Approval Receive PQ/Bids Technical Evaluation acceptance Capture PQ/Bids PQ/Bid evaluation Recommendation Make payment Request FA Approve FA LOA/Order Process Pay’t Docs Suppliers

Procurement Execution Level 3 2x Procurement Service Centres [PSC’s] Thaba Tshwane and Simons Town SAMHS: Procurement Unit [Medical specific] Procure at a Corporate Level [central] Requirements come from Formations and/or PSMs Purchase through contracts, bids and / or price quotations

Procurement Execution Level 4 Regional Procurement Sections SA Army: 15 SAAF: 10 SA Navy: 2 SAMHS: 1 J Ops: 2 DHQ Unit: 1 Regional requirements [FSEs] Purchase through contracts or price quotes

Procurement Categories Procurement transactions fall within the following categories: Petty Cash:- R5,000-00 Price Quotes:- <R500,000-00 Bids:- >R500,000-00 Contract item:- Any Value

Sourcing Process Price quotations - fwd docs to selected suppliers. Suppliers chosen (rotation) from a database Bids - advertised in government tender bulletin, all suppliers have access to this All PQ’s and bids have closing dates and times. Received, evaluated administratively & technically, ranked for acceptance and recommended to the relevant committee for approval

Authorising Entities NAME ABB PROC FIN THRESHOLD Regional Commercial Procurement Committee RCPC R1,000,000-00 Corporate Commercial Procurement Sub-committee CCPSC R5,000,000-00 Corporate Commercial Procurement Committee CCPC R10,000,000-00 Departmental Commercial Procurement Board DCPB Unlimited

Payment Procedure Proc process ends when supplier is paid in full Rule (National Treasury prescribed) - payment 30 days after receipt of invoice Advance payments to suppliers is not done unless agreed to as part of the contract conditions, and approved by CFO FASC – responsible for finalising supplier payments. PSC’s only deliver the payment packs

Payment Documents For FASC to process payment, ff documents are required: Delivery note Invoice Receipt voucher (accounting) Order / contract Completion certificate (services/repairs)

Alternative Service Delivery A mix of flexible delivery programmes, activities and mechanisms that can be strategically used to achieve service delivery objectives by outsourcing or PPPs Legislated by - PFMA - Treasury Regulation 16 (PPP’s) - DOD Policy - DODI/00003/2000 DOD Defence Review, April 1998 stated that all non-core functions must be considered for outsourcing, the DOD must focus on its core business

Types of Procurement Transactions Transversal Contracts Common Products / Services Division-Specific Services Control and Management National Treasury / SITA / DPSA Central Procurement via mid-term contracts Central Procurement via tender process Co-ordination and Admin Corporate Procurement [Log Div] Execution Services / Divisions Monitoring Compliance Materiel GRC Material GRC

PROCUREMENT SYSTEM

System Design Principles Combining the principles of JIT, TQM and SCM Responsible Procurement Officials shall be of the rank of SO1/Assist.Director/Lt Colonel/Cdr upwards Separate ‘oversight’ function from the ‘execution’ function. System must allow ‘pro-active’ monitoring Centralise control, and localise execution

Procurement Delegans SECDEF : by law CSANDF : by SECDEF Authorising Entities : by SECDEF Senior Proc Officials : by SECDEF / CSANDF Proc Officials : by SECDEF / CSANDF

Financial Delegans SECDEF : by law CSANDF : by SECDEF Div / Serv. Chiefs : by SECDEF / CSANDF Senior Personnel : by SECDEF / CSANDF

Procurement Structures: Execution Procurement offices / sections at units Day-to-day procurement Procurement officials coordinated One for each service / division Procurement Unit Supporting Procurement Units Handling central procurement activities Handling tender processes 3 of them Managed by senior procurement officials Procurement Centre Supporting procurement centres A directorate within Log Division Central control of procurement strategy Issue directives and execution frameworks to the lower structures Corporate Procurement

Procurement Structures: Oversight Regional Proc Committee Corporate Commercial Proc Sub-Committee Corporate Commercial Proc Committee Departmental Commercial Proc Board

The New Procurement Framework Services / Divisions Financial Delegations CSANDF Procurement Delegation - Prerogative Procurement Delegations Procurement Unit 1 SA Army Procurement Centre Central Procurement Delegations Procurement Unit 2 SAAF Corporate Procurement SANDF Log Div Procurement Unit 3 SA Navy Procurement Centre Simons Town Goods/services Delivery of Procurement Unit 4 J Ops Procurement Unit 5 SAMHS Procurement Centre Waterkloof Procurement Unit 6 DHQ Compliance To Gov. Framework GRC Support GRC Support Regional Procurement Committee Corporate Commercial Procom DCPB Procurement Delegations Procurement Delegations

Exercising Procurement Delegation: CSANDF CSANDF shall exercise his Procurement Delegation within the Authorising Entities However CSANDF may use his procurement delegation outside the normal procurement process in cases of emergency as defined in JDP: ACQ 0003/2004 Provided a condonment is prepared and submitted to the authorising entity within 14 days.

CORRUPTION PREVENTION / CONTROL

Prevention / Control Mechanisms Submission of needs by DOD end-users. All procurement requests are scrutinized by the DOD Corporate Procurement Centre’s prior to inviting tenders to ensure that specifications/contracts are not drawn up to favour particular suppliers. Segregation of duties. All persons involved in the procurement process/cycle perform a single procurement task only i.e. person inviting tender is thereafter not involved in either evaluating, recommending or serving on approval committee’s/board’s to award the tender. Invitation of suppliers to tender for DOD work. As prescribed by National Treasury, the DOD utilises an electronic database (Proquote) which chooses suppliers by a rotation system per commodity category. DOD also advertises in the Government Tender Bulletin. Recommendation to Award Tenders. Entire procurement process is electronic on E-Proqure. (Capturing of PPPFA points).

Prevention / Control Mechanisms Approval of Tenders. Not vested in any individual in the DOD. Only authorised constituted committees and boards approve awards. Members serving must also declare their interests regarding awards under consideration. Effective Procurement Governance. Achieved through proactive monitoring by GRC to ensure compliance of procurement policies and procedures. GRC also retains Chairmanship of the procurement Committees and Boards that award tenders. GRC provides specialist advice and guidance to all DOD entities executing procurement. Procurement Training and Corruption Awareness. DOD procurement officials are regularly exposed by attending workshops, seminars, formal DOD courses, etc.

Prevention / Control Mechanisms Interaction with National Treasury. DOD regularly engages NT for clarification of specific procurement issues. NT also promulgates SCM Practice Notes that regulate procurement and the DOD must implement same. Procurement Deviations. Are only approved by the Accounting Officer and must be reported to NT and AG. Procurement Delegations. Only issued by the Accounting Officer [or CSANDF sub-delegations] iaw PFMA. No DOD official is authorised to execute procurement without a delegation from either SecDef or CSANDF. Compliance to Legislation. DOD confirms strict compliance to all procurement prescripts as a measure to prevent corruption.

Challenges within Procurement Declaration of Interest. No legislation that prevents DOD officials from tendering for DOD work whilst in the employ of the DOD. Members need to only declare to higher authority that they own a business. Segregation of Duties. Enforcement is problematic due to personnel shortages. Electronic Procurement System Downtimes. Can result in specific suppliers being asked by procurement personnel to tender.

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