Preferential procurement rules being abused says Treasury

9 August 2018

Public sector subcontracting regulations designed to provide economic opportunities for disadvantaged groups are being abused, it has been alleged.

South Africa’s Treasury said it has received a number of complaints that “people” have been demanding cash to the value of 30% of contracts in certain municipalities and provinces. This is an abuse of the Preferential Procurement Regulations that requires that 30% of public procurement contracts be subcontracted to designated groups, it said.

It added that if the demands were not met, these people threatened contractors and interrupted or stopped the implementation of work.

The complaints had been received from a number of provinces and municipalities.

Under the Preferential Procurement Regulations 2017 contractors awarded contracts over R30m are required to subcontract out 30% of the value to designated disadvantaged groups. The rule is part of the government’s plan to use its procurement spend to increase economic opportunity for these groups.

In a statement, the Treasury said: “It is alleged that some people are now demanding that they, instead, be paid in cash 30% of the value of each contract awarded in these provinces or municipalities.

“Such practices are not only illegal, but defeat the government objective of transforming the South African economy through equal opportunities for all.”

Demanding the subcontracting cash value the broke constitutional requirement that the public procurement is “in accordance with a system that is fair, equitable, transparent, competitive and cost-effective”, it said.

The Treasury called on provincial treasuries and other state bodies to abide by the procurement regulations and report any interruptions to public projects over the subcontracting requirements to law enforcement agencies.

In the same statement, the Treasury also noted that some state bodies were using procurement preferences that were “not provided for in the current regulatory framework”, including restricting procurements to suppliers within a geographical area. It said tenders awarded this way would be classified as irregular expenditure.

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