1. DRAFT PREFERENTIAL PROCUREMENT REGULATIONS
NATIONAL TREASURY
Henry Malinga

2. Content Purpose Background Legislative Environment
Current Preferential Procurement System
Alignment of PPPFA with BBBEEA
Way forward
National Treasury

3. PURPOSE

4. Purpose
To provide an overview of the draft Preferential Procurement Regulations (Alignment of the Preferential Procurement with the aims of the Broad Based Black Empowerment Act and its Codes of Good Practice)

5. BACKGROUND

6. Background
On 10 September 2003, government adopted of a Policy Document, titled “Policy to Guide Uniformity in Procurement Reform Processes in Government”
On 05 December 2003 the Framework for Supply Chain Management was published in the Government Gazette as part of Treasury Regulations in terms of section 76 (4) (c).
On 5 March 2005 the Framework for Supply Chain Management was included into the Treasury Regulations as Chapter 16A.
On 09 January 2004 the Broad Based Black Economic Empowerment Act was promulgated.

7. LEGISLATIVE ENVIRONMENT
National Treasury

8. Statutory Framework for Public Sector Procurement
Legislative Framework
Uniform Procurement directives to three spheres of government
Supply Chain Management Guidelines
Standard Bidding Documents
Practice Notes
Constitution
PFMA / MFMA Acts
PPPF Act and Preferential Procurement Regulations
B-BBEE Act
Other prescripts
Standard for Uniformity
National Treasury Best practice guidelines
CODES OF CONDUCT FOR SCM PRACTICTIONERS AND BID COMMITTEE MEMBERS

9. Procurement Reform
The PFMA and MFMA gives effect to the Constitutional Requirements in order to bring about sound financial management by:
Replacing the outdated procurement and provisioning processes with uniform simplified procurement procedures
Establishing supportive SCM structures.
Promoting consistency in policy application.
Devolving accountability and full powers to accounting officers/authorities. Consistent with the aims of the PFMA and MFMA that accountability and responsibility for all expenditure vest with accounting officers/authorities
The above initiatives resulted in the introduction of the INTEGRATED SUPPLY CHAIN MANAGEMENT function in government.

10. Legislative Environment
Section 217(I) of The Constitution provides the basis for procurement by determining that:
“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods and services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective”.
The PFMA and MFMA with their respective regulations give effect to this prescript.
National Treasury

11. Legislative Environment
Section 217(I) of The Constitution further confers:
an obligation for national legislation to prescribe a framework providing for preferential procurement to address the social and economic imbalances of the past.
The Preferential Procurement Policy Framework Act (PPPFA) of 2000 and its accompanying Regulations were promulgated to achieve these goals. (This Act incorporated the 80/20 and 90/10 preference point systems.)

12. Current Preferential Procurement System

13. Preference Points System
The PPPFA and its associated Regulations incorporate the 90/10 and 80/20 preference point systems
10 or 20 points make provision for the promotion of equity ownership by HDIs or the specific RDP goals
Allows the state to pay a maximum of 11.1% and 25% premiums respectively.
A maximum of 90 and 80 points represents price.
Contracts awarded to the bidder who scores the highest total points (points for price added to points for RDP goals)

14. 90 / 10 Preference Points System
Compulsory for Procurement > R
Maximum of 90 Points for Price
Maximum of 10 Points for promotion of HDIs and / or Specific RDP goals

15. 80 / 20 Preference Points System
Compulsory for procurement = > R R
May be used for <R (database of suppliers for price quotations)
Maximum of 80 Points for Price
Maximum of 20 Points for promotion of HDIs and / or specific RDP goals.

16. Preference Points System
Ambiguity was identified between PPPFA and BBBEEA
thus alignment of the two legislations was necessary.
Some of the identified shortcomings were but not limited to:
Inconsistency in the policy application
The definition of HDI was too broad leading to huge fronting
BBBEE and PPPFA were out of sync
A work group was established between National Treasury and the BEE unit of the DTI to align the Preferential Procurement Regulations with the BBBEE Act, i.e. Preferential Procurement Regulations to be revised.

17. ALIGNMENT OF PPPFA WITH
BBBEE ACT

18. Long term legislative process for repeal PPPFA
Repeal PPPF Act
New Treasury Regulations would incorporate SCM Regulatory Framework (including preferential procurement)
The same process will be applied for the municipalities

19. Immediate Alignment Initiatives
For immediate, short term retain the PPPFA and amend Preferential Procurement Regulations to be brought in line with the aims of the B-BBEE Act using the balance scorecard methodology as prescribed by the B-BBEE Act and its Codes of Good Practice
Use definitions contained in the B-BBEE Act and Codes of practice eg. Black people vis a vis HDIs
Use Verification Certificates issued in terms of the
B-BBEE Scorecard to calculate points out of 10 or 20

20. B-BBEE Codes of Good Practice Balance Scorecard
Elements of the B-BBEE Codes of Good Practice Balance Scorecard that would be used to determine B-BBEE level of contribution are as follows:
Black ownership
Management control
Employment Equity
Skills development
Preferential procurement from BEE suppliers
Enterprise development
Socio-economic development
These elements include black ownership and the RDP goals

21. Draft Preferential Procurement Regulations
Points to be awarded to a bidder based on his or her B-BBEE status level
Eg. Level 1 contributor would receive 20 points whilst level 4 contributor would receive 12 points out of a maximum of 20 points.
Level 1 contributor would receive 10 points whilst level 4 contributor would receive 5 points out of a maximum of 10 points.
Calculation of points to be based on the B-BBEE ratings of a bidder as follows:

22. Draft Preferential Procurement Regulations
Calculation of points for B-BBEE RATINGS
B-BBEE Status Level of Contributor
Number of points (90/10 system)
Number of points (80/20 system) 1 10 20 2 9 18 3 8 16 4 5 12 6 7
Non-compliant contributor

23. Draft Preferential Procurement Regulations
Threshold values
80/20 preference points system
Compulsory for procurement
= > R – R1m
90/10 preference points system
Compulsory for Procurement
> R1m

24. Draft Preferential Procurement Regulations
Exempted Micro enterprises (EME)
(Entities with total revenue of less than R5 million)
automatic level 4 recognition.

25. Draft Preferential Procurement Regulations
Verification
EME need to prove revenue status.
Non-EME’s to submit B-BBEE verification certificate obtained from Verification Agencies accredited by SANAS.
Certificates issued by non-accredited Verification Agencies prior to 9 April 2009 will only be valid for 12 months from date of issue.

26. Draft Preferential Procurement Regulations
Remedies to be made available for false B-BBEE claims etc.
Enterprise awarded a contract may not sub-contract more than 25% of the value of the contract to a person who does not have equal or higher B-BEE status level.
Preferential Procurement Regulations will be extended to all organs of state for uniformity purposes

27. Way Forward

28. Draft Revised Regulations has been published in National
Draft Revised Regulations has been published in National Government Gazette and all Provincial Gazettes for public comments – Closing Date 14 September 2009
Comments will be evaluated and incorporated in consultation with the DTI – Legally refined
Minister of Finance will formally promulgate Regulations
Roll-Out will be properly communicated to government institutions (including training, information sessions and workshops)
Treasury would monitor policy outcomes closely – to influence national policy
Public sector required to monitor own outcomes to influence own policy

29. Comments must be submitted in writing for attention
Mr. HML Malinga or Mr. Jan Breytenbach
The Director-General
National Treasury
Private bag X115
PRETORIA, 0001 or
faxed to or or
or respectively

30. Discussion