SA buyers to be liable for fraud

19 November 2010

21 November 2010 | Nick Martindale

The South African government has unveiled plans that would make public officials and suppliers who take part in tender fraud personally liable for any losses incurred.

In his medium-term budget policy statement to parliament, minister of finance Pravin Gordhan said: “Stiff penalties are proposed, of up to double the contract value, for service providers who obtain government contracts fraudulently.

“Public officials who assist in tender fraud will also be liable for resultant losses incurred by government.”

Measures should be introduced to ensure that government staff suspected of involvement in contract corruption do not stay suspended on full benefits while investigations “drag on for years”, he added.

Gordhan also outlined proposals to introduce a withholding tax on payments to suppliers as part of a move to strengthen tax compliance measures, and to grant greater powers to the South African Revenue Service to check the tax status of bidders.

Andrew Hillman, managing director of Bespoke Sourcing Solutions and a member of Procurement Initiatives Africa, said: “Any regulatory and legislative reforms to curb corruption are most welcome. Suppliers that obtain government contracts fraudulently should face the full force of the law, including fines and jail.”

But South Africa-based procurement consultant Elaine Porteous said the main problem regarding tender corruption was a shortage of experienced professionals and a lack of procurement skills in the public sector.

“The work ethic and motivation is poor, possibly partly the result of the extent of the corruption and fraud around them,” she said. “The government must tackle this before we will see real improvement.”

International procurement consultant Andrew Muhimbise also warned that a withholding tax on suppliers could “keep out smaller, notably indigenous, companies from tender exercises”.

The government is investigating procurement tender fraud worth around R25 billion ($3.6 billion), said Gordhan. It was recently granted orders to retain a Learjet, a holiday home, a hotel and a golf course

worth a total of about R200 million ($28.6 million), following the arrest of senior government officials.

Another supplier voluntarily returned R10 million ($1.4 million) it had been paid for work that had not been completed, he added.

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