PUBLIC PROCUREMENT CHALLENGES IN SOUTH AFRICA

It is important to note that SCM is an integral part of procurement in the South African public sector. Therefore, it is used as a tool for the management of public procurement practices.

However, despite the employment of SCM as a strategic tool, public procurement in South Africa still faces enormous predicaments. These include, among others:

lack of proper knowledge, skills and capacity

non-compliance with SCM policy and regulations

inadequate planning and the linking of demand to the budget

accountability, fraud and corruption

inadequate monitoring and evaluation of SCM

unethical behaviour

too much decentralisation of the procurement system

ineffectiveness of the black economic empowerment (BEE) policy.

These predicaments are briefly discussed below.

Lack of proper knowledge, skills and capacity

To fully achieve SCM objectives, the National Treasury provides support by facilitating the development of appropriate training materials to government departments, municipalities and municipal entities (National Treasury, 2005). However, the shortage of skills has been a

re-concurrent theme in public discussion. According to Sheoraj (2007), skills and capacity shortages have been identified as the single greatest impediment to the success of public procurement in South Africa. Adequate capacity in the form of appropriate structures with fully skilled and professional SCM personnel is a key success factor for proper SCM implementation. In some government entities, the quality of SCM personnel’s skills and ability are well below standard. Migiro and Ambe (2008) assert that many SCM actors in the South African public sphere have attended a number of training workshops on SCM, but they still lack the appropriate knowledge for proper implementation. McCarthy (2006) contends that there is a lack of capacity and knowledge by SCM actors to handle procurement processes that have led to bad governance. The South African government embarks on programmes that educate practitioners, but implementation of its programmes always falls short.

Non-compliance with policies and regulations SCM is guided by a number of related policies and regulations (National Treasury, 2005).

Compliance with these policies and regulations is a problem. As indicated by Matthee (2006), some of the practices relating to non-compliance with the rules and procedures relate to the tendency not to utilise a competitive process for both quotations and bids, and incorrect utilisation of the preference points system. Van Zyl (2006) also asserts that there is a lack of appropriate bid committees; use of unqualified suppliers, passing over of bids for incorrect reasons; utilisation of the incorrect procurement process in respect of the thresholds; extensions of validity periods; and incorrect utilisation of the limited bidding process. Furthermore, Ambe and Badenhorst-Weiss (2011b) noted that there are inadequate controls and procedures for the handling of bids; appointment of bid committee members not aligned to policy requirements; and insufficient motivation for deviations from SCM procedures.

Inadequate planning and linking demand to the budget

Demand management is integral to the SCM process. It defines the decision-making process that allows departments to procure at the right time, at the right place and at the right cost. However, many government entities are still faced with the challenges of improper planning and linking demand to budget (Ambe & Badenhorst-Weiss, 2011a). Cost-effective procurement depends on a specialist’s skills to ensure that buying requirements are reliably determined, appropriate contract strategies are developed, contracts are well managed and opportunities are seized to secure the best deals at the right time and at the right price. The importance of drawing up accurate and realistic strategic plans cannot be overestimated.

At times there is an absence of coherent plans. Some government entities cannot properly quantify the needs of those requiring their services or properly estimate costs, nor can they accurately track, control or report on expenditure (Luyt, 2008). Luyt (2008) indicates that there is a need to monitor the delivery of services properly to ensure that scarce resources are efficiently and effectively procured. Poor planning and budgeting have also affected the implementation of SCM. It is therefore vital that SCM practitioners adequately link demand planning to budget.

Accountability, fraud and corruption

Accountability constitutes a central pillar to public procurement (Soudry, 2007). Without transparent and accountable systems, the vast resources channelled through public procurement systems run the danger of being entangled with increased corruption and misuse of funds (Jeppesen, 2010). According to Mahlaba (2004), fraud and corruption cost South African tax payers hundreds of millions of rand each year. Over the last few years, the impact of fraud has led to the promulgation of special legislation and improvement in existing legislation that led to the creation, among others, of the Directorate of Special Operations, commonly known as the Scorpions, the Asset Forfeiture Unit, the Public Protector, the Special Investigation Unit, Commercial Crime Units, Internal Audit Units, Special Investigation Units within departments, and the appointment of forensic consultants (Mahlaba, 2004).

According to Boateng (2008), since 1994, South Africa has enjoyed unprecedented social and infrastructural programmes. Yet, the majority of people who had hoped freedom would bring with it relative socio-economic liberation and improvement are feeling increasingly bitter towards government over issues that include a lack of perceived quality of governance, service delivery failure, fraud and corruption in some spheres of the economy and disillusionment with empowerment policies (De Lange, 2011). The Public Service Commission Committee (2011) indicated that a total of 7 766 corruption cases had been reported through the National Anti-Corruption Hotline since its inception in September 2004 up till June 2010. De Lange (2011) notes that taxpayers were fleeced of R30 billion (3.675 billion USD). Corruption, ncompetence and negligence by public servants were to be blamed (De Lange, 2011). About 20 per cent of government’s procurement budget alone ‘went down the drain each year. This was because officials had their fingers in the till, overpaid for products and services or failed to monitor how money was spent’ (De Lange, 2011). Among government entities probed for procurement irregularities was the Tshwane Metro where about 65 municipal officials were investigated for striking business deals worth about R185 million with their own Council (Pauw, 2011). The National and Provincial governments and their entities notched up R21 billion in irregular expenditure in 2010, a 62% rise (R13 billion) over the previous year (De Lange, 2011). The auditor general highlighted weaknesses in SCM, controls over information technology, human resource management, and capital assets and performance reporting during a briefing to Parliament’s Standing Committee on Public Account (Smart Procurement, 2011).

Hence, there is an urgent need to rethink innovative ways of curbing corruption and some other administrative malpractices within South African spheres of government. To fight the scourge of maladministration, mismanagement of finances, fraud and corruption, government needs to strengthen and review existing internal control systems to detect deficiencies.

Inadequate measures for monitoring and evaluation of SCMEffective policy-making requires information on whether governments are doing things right and whether they achieve the results intended (Acevedo, Rivera, Lima & Hwang, 2010).

Unethical behaviour

Ethics is the study of moral judgements and right and wrong conduct. Ethics and conflict of interest greatly affect SCM implementation. Enormous power is wielded by some chief financial officers but there is also a lack of proper consultation with other senior officials.

While the National Treasury’s guide to accounting officers prescribes a standard approach towards SCM procedure, in many instances there is lack of compliance and application of the guidelines. This has resulted in differentiation in approaches and a lack of standardisation. According to McCarthy (2006), the completeness of tender documents in many municipalities is difficult to verify.

Too much decentralisation of the procurement system

In South Africa, government procurement of own or local requirements (materials, equipment and services) is to a large extent decentralised to departments, provinces and municipalities. If one takes the number of cases of tender fraud and lack of services on all levels of government into account one should ask oneself whether these parties have the knowledge and/or the intention to get the best value for tax-payers’ money. Arguments for a larger extent of centralisation of procurement to knowledgeable, accountable procurement officials/agents or procurement consortiums could be put forward.

‘Centralization leverages scales to reduce costs. Decentralisation relies on local knowledge to build relationships’ (Fawcett, Ellram & Ogden, 2007: 310). Centralisation offers advantages such as leverage due to volumes, reduction of duplication of purchasing effort, better control and development of specialised expertise of purchasing personnel (Handfield, Monczka, Guinipero & Patterson, 2011: 160–61). On the other hand, decentralisation often leads to better responsiveness to purchasing needs, a better understanding of unique local needs, and is closer to suppliers and taking ownership of decisions that impact on one’s own budget (Handfield et al. 2011: 162). However, if the advantages of centralisation are to be realised, efficient contract management and supplier relationship management is a pre-condition. The schoolbook saga in various provinces of South Africa in 2012, where textbooks had not been delivered to schools by the third term of the school year is an example of what can happen without proper contract management.

Ineffectiveness of broad-based black economic empowerment The South African government adopted the provision of BEE to empower all historically disadvantaged people rather than only a small group of black investors. To this end, it adopted the Broad-Based Black Economic Empowerment Act (BBBEEA), which calls for expanded opportunities for workers and smaller enterprises as well as more representative ownership and management. Current BEE provisions have, however, in many instances failed to ensure a broad-based approach, instead imposing significant costs on the economy without supporting employment creation or growth. The present BEE model remains excessively focused on transactions that involve existing assets and which benefit a relatively small number of individuals. The following shortcomings have emerged in the implementation of BEE: First, ownership and senior management issues receive disproportionate emphasis. The unintended consequences of this trend include ‘fronting’, speculation and tender abuse. Secondly, the regulations do not adequately incentivise employment creation, support for small enterprises and local procurement. The preferential procurement regulations aggravate this situation by privileging ownership over local production. Finally, the BBBEE regulations penalise public entities as  uppliers. The democratic state owns public entities on behalf of its people yet the regulations do not count them as ‘black empowered’ (Zuma, 2009). Subsequent to the discussion presented above, it is evident that there are constraints in procurement practices in the South African public sector. These predicaments can to a large extent be attributed to lack of proper knowledge, skills and capacity. Therefore, the South African government will need to address these dilemmas in order to fully achieve the policy objective of public procurement.