The Preferential Procurement Regulations Have Changed - This Is What It Means For Your Business

In 2017, the Minister of Finance issued detailed Preferential Procurement Regulations in terms of the Preferential Procurement Policy Framework Act (Number 5 of 2000). Among others, these procurement regulations laid down the criteria for the adjudication of tenders. Criteria included price, the Broad-Based Black Economic Empowerment status of the entity completing the tender, matters such as local production and sub-contracting. Other details included the criteria for breaking deadlocks in scoring, the award of tenders not scoring highest points and cancellations.

In February this year, the Constitutional Court found that these regulations were inconsistent with the Preferential Policy Framework Act and ordered the Ministry of Finance to develop new practices within one year. On 4th November 2022 the Minister of Finance, Minister Godongwana, promulgated the Preferential Procurement Regulations, 2022 in Gazette 47452. This Gazette has stripped away most of the requirements from the previous regulations.

The new regulations require the tender documents to state the applicable preference point system to be applied, any specific goals that are relevant to the tender must be specified in the invitation to tender, the points which points are to be awarded for achieving these goals, the calculation of the points to be awarded and evidence that will be required in support of these points.

The preference point systems are:?

• 80/20 for the acquisition of goods or services with a of R50 million or less and for tenders for income-generating contracts with award value of equal to or less than R50 million
• 90/10 for the acquisition of goods or services with a value above R50 million round and for tenders for income generating contracts with award value of more than R50 million.

Under the 2017 regulations, taking the 80/20 preference point system as an example, 80 points were used when measuring items such as the efficacy of the product supplied, the price, any local content and other requirements specified in the tender documents. The remaining 20 points were allocated based upon the tenderer’s BEE status.?

Under the 2022 regulations the 20 points are no longer based upon the tenderers BEE status but are awarded based on goals specified for the tender. In terms of the regulations these specific goals “… means special specific goals as contemplated in section 2 (1) (d) of the Act which may include contacting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender, and disability including the implementation of programmes of the Reconstruction and Development Programme as published in Gazette 16085 dated 23 November 1994.”

The 2017 regulations gave tables showing how the points were to be allocated to the tenderer based on their BEE status. Because of the Constitutional Court finding, these tables are no longer in the regulations. Instead the Invitation to tender must state how the points are going to be allocated. Section 30 (1) (b) of the regulations requires the organ of state to indicate the specific goals that will be applied in the adjudication of the tender, the number of points that will be awarded to each goal and proof of the claim for such goal. Tender documents will need to be very detailed.

Irrespective of which preference point system is applied, the contract must be awarded to the tender scoring the highest points. When there is a deadlock in scoring, this will be resolved initially by reference to scores achieved for the specific goals with the tenderer receiving the highest points winning the contract. If the tenderers score the same points for everything, it will be awarded by the drawing of lots.

A large number of the requirements laid out in the Preferential Procurement Regulations, 2017 have been removed in the Preferential Procurement Regulations, 2022. The Preferential Procurement Act is also being amended and from a review of the draft bill it appears the Preferential Procurement Act will become the vehicle to drive and protect procurement.?

Some Brief Comments On This Draft Bill

National Treasury and the Public Procurement Office, which will be housed in Treasury, will be given teeth in terms of corruption and loss of public funds. The Public Procurement office has wide-ranging powers. In fact it appears almost like a law enforcement agency. The question that arises is how will it be staffed and will it have a watchdog to prevent abuse?

Offences (section 61) range from fines to imprisonment for up to 10 years in terms of this bill but other Acts are brought in such as the Prevention and Combating of Corrupt Activities Act. These are welcomed.

There are a large number of things that “must” be done. The implementation and policing of such matters are not necessarily dealt with in the Regulations. Examples where steps “must” be taken are S27 (Rejection of Bids), S 29 (Awards Deviating from Committee Recommendations), S32 (conclusion of Contracts) and S12 (disclosure of interest by officials).

The Minister must publish regulations in terms of S64 and this section gives details of the matters these regulations must deal with. Two examples of S64 requirements not included in the Procurement Regulations are security vetting for procurement official in supply chain and at the Public Procurement office as well as procedures and fees for lodging objections.