We can use law to combat public procument corruption

Model Law

 The Model Law also serves as a guide on various aspects of the open tendering process, including inter alia best practices pertaining to communication during a procurement process,18 the participation of suppliers or contractors, the qualification of suppliers and contractors, the minimum information to be disclosed in solicitation documentation and invitations to tender, evaluation and award criteria, rules pertaining to requests for information or clarifications sought by bidders, rules regarding the acceptance of the successful bid, rules regarding the manner in which records of procurement proceedings are to be maintained, various methods of procurement, the manner in which tenders are received, opened and evaluated, and challenge proceedings. A criticism of the Model Law, however, is that like most other public procurement texts, the focus is mainly on the selection and award stages of procurement. Notwithstanding this criticism, the Model Law has served as a benchmark for many countries, including South Africa, in reforming their public procurement regimes, as will be seen below.

The constitutional dimension

Section 217 of the Constitution provides the constitutional basis for public procurement in South Africa. Section 217(1) sets out five constitutional principles on which all procurement practices must be based: fairness, equity, transparency, competitiveness and cost-effectiveness. Subsection 217(2) recognizes that public procurement may be used as a tool to promote social and policy objectives by promoting the development of previously disadvantaged groups, for example. In order to fully appreciate the constitutional framework, it would be prudent to briefly highlight, now, each of the five principles enunciated in section 217(1). Fairness, as an abstract concept, is difficult to define. According to Baxter "… as a bare concept, fairness has no meaning, but the meaning accorded to fairness in any given situation will be a conception of fairness". It is trite law, however, that fairness is often defined in terms of procedural fairness and substantive fairness. The Promotion of Administrative Justice Act (PAJA) sets out the elements of a procedurally fair administrative action. These elements largely reflect the well-known principles of natural justice. While procedural fairness is concerned largely with procedural safeguards and adherence to rules, substantive fairness refers to the reasons for a decision. This means that the decision must be reasonable, taking into account the circumstances of the case.

Transactions entered into by virtue of public procurement result in contracts. However such contracts are not entirely akin to contracts within the private sector, wherein the contracting parties are bound and obligated only to one another, to the exclusion of non-contracting parties. A government is in a different position. As the custodian of public funds, government can be said to always have a fiduciary duty to the general public in all of its decisions, actions and/or conduct, including when it contracts for goods and services with the private sector. This fiduciary duty means that there must be fairness in the relationship between organs of state, fairness in relation to competing tenderers, and fairness to the general public. In this sense, fairness to the general public and fairness to competing bidders may entail more than just procedural fairness to prospective bidders, as it includes considerations about whether the decision or action in question is substantively fair in the light of the interests of the general public. Considering that government’s procurement decisions have a significant impact not only on the contracting parties but also on the general public, and seeing that section 217(1) has allowed room for such an interpretation, it is submitted that fairness within the context of public procurement means both procedural and substantive fairness.

As far as the principle of equity is concerned, Bolton’s view referring to the fair treatment of disparate groups in South Africa is instructive. She states that:

Equity is a measure that compares one group with another, for example black with white, rural with urban, rich with poor and women with men.

Instead of treating all groups exactly the same, groups who face different levels of resources and development should receive different treatment … Areas with the most vulnerable populations and worst facilities should receive more resources than more affluent areas. Thus, equity can be said to be aimed at improving the position of vulnerable groups in South Africa.

De la Harpe avers that in interpreting equity as contained in section 217(1) of the Constitution, the general tone and purpose of section 217 and of the Constitution as a whole is relevant. In that regard, he states that the utilisation of public procurement to address the legacies of Apartheid by the preferential treatment of previously disadvantaged South Africans may be equitable. In the circumstances, it is submitted that equity, in terms of section 217(1) of the Constitution, can be said to be aimed specifically at addressing the inequalities and unfair discriminatory practices of the past. During the apartheid era the procurement system in South Africa tended to favour "larger and better established entrepreneurs and did not create a favourable environment for small, medium and micro enterprises, in particular those owned and controlled by previously disadvantaged persons".37 In transforming its public procurement system, the post-apartheid government aims to "realise the potential of public sector procurement as an instrument of policy in the socio-economic transformation process." This is clearly reflected in the Constitution, where provision is made in section 217(2)(a) and (b) for categories of preference in the allocation of contracts, and for the protection or advancement of persons disadvantaged by unfair discrimination. In this way, public procurement is used as a vehicle to effect socio-economic reform in South Africa.

The interpretation of the constitutional principle of transparency is critical in any evaluation of laws aimed at combating corruption in the public procurement sector, because transparency is universally recognized as being indispensable in the fight against corruption. Apart from the context of section 217(1), the notion of transparency must also be interpreted in the light of the right to access to information, as contained in section 32 of the Constitution. It should also be seen in the context of section 33 of the Constitution, which affords every person whose rights have been adversely affected the right to be given written reasons for administrative decisions. Finally, transparency must take into account the secret and clandestine nature of procurement corruption. A transparent procurement system, in addition to ensuring that procedures are open to scrutiny, should ensure that actual reasons and underlying principles in terms of which decisions are made are fair, lawful, rational, and free of any venal intent.

In understanding the contextual meaning and content of the constitutional principle of competitiveness, the Competition Act is a useful starting point, because its preamble clearly recognises that the past apartheid and other discriminatory laws and practices resulted in excessive concentration of ownership and control within the national economy, weak enforcement of anti-competitive trade practices, and unjust restrictions on full and free participation in the economy by all South Africans. As the largest buyer of goods and services in the country, government is uniquely placed to promote and advance competition in order to create a more robust economy from a commercial perspective, as well as an economy that fosters full and free participation by all who wish so to participate. Public procurement must therefore seek to achieve competitiveness in terms of this dual perspective.

The commercial nature of competition implies that a wide range of suppliers ought to be given an opportunity to bid for government work, and government ought to then select the contractor whose bid represents the best value-for-money option. A procurement system that follows this approach will encourage the production and rendering of quality goods and services by commercial entities in the market, as competitors will understand that it is not only a low price which will secure them a public contract. In this way, public procurement advances competition, which results in an economy in which consumers benefit from superior quality goods and services.

With respect to redressing past apartheid and discriminatory laws and practices, competition will of necessity involve a structured system of preferential procurement. This is provided for within section 217(2) of the Constitution. With respect to public procurement, it is only through a system of preference that the ideals, as contained in the Competition Act, of creating an economy that is open to greater ownership by greater numbers of South Africans can be achieved. As such, public procurement in South Africa is subject to specific preferential procurement laws. It is therefore submitted that in order to satisfy the principle of competiveness, each procurement decision must be balanced in order to reflect the commercial nature of competition and the achievement of the ideals outlined in the Competition Act.

Competition and cost-effectiveness are largely interconnected and interrelated, as both principles concern the attainment of value for money. According to De la Harpe, a cost-effective action can be described as being effective or productive in relation to its costs. Therefore, in the example used above, while the initial cost of not utilising a competitive system may be higher, the action itself may be more effective, in that the prevention of delay may prevent further and more costly damage in the longer term. However, the danger in public procurement lies in the abuse of such methods and the unjustified non-use of competitive methods in the guise of emergency situations which in reality ought to have been anticipated well in advance. This will constitute a negation of the principle of cost-effectiveness.

De la Harpe further asserts that a system is cost-effective when it is standardised with sufficient flexibility to attain best-value outcomes in respect of quality, timing and price, and demands the least resources to effectively manage and control the procurement processes. In this respect, cost-effectiveness is interconnected with competition, in that the lowest tender might not always be the best option. A product with a longer lifespan or cheaper maintenance costs might be more cost-effective than its cheaper counterpart.

The principles of fairness, equity, transparency, competitiveness and cost-effectiveness, as set out here, must underpin all public procurement actions. Legislation governing public procurement and the implementation thereof must therefore promote these principles. The principles are the primary yardsticks against which all procurement processes and decisions must be tested. A public procurement system in South Africa, in order to pass constitutional muster, must reflect these five principles. While it may be difficult for any particular procurement decision to strictly reflect all five principles, the public procurement system, as a whole, must reflect the principles. Due to the considerable judicial attention that the constitutional procurement principles have attracted, a discussion of such principles would be incomplete without reference to the relevant judicial jurisprudence. A discussion of the judicial approach to the interpretation of the constitutional procurement principles and the judicial approach to public tendering in South Africa is undertaken below. First, however, if meaningful legal reform has to be suggested, an evaluation of the domestic legislative framework is necessary.

The legislative framework

 In South Africa, public procurement is extensively regulated. No single piece of legislation is applicable to all aspects of public procurement, and the rules pertaining to public procurement are found in several laws. Prior to 1994 public procurement in South Africa was centralized. Soon after 1994 government introduced budgetary and financial reforms. The first phase of reforms began with the introduction of a new intergovernmental system which required all three spheres of government to develop and adopt their own budgets. This decentralized budgeting model also meant that heads of departments needed to have control over procurement expenditure, if each sphere of government and each department within government were to be held accountable for its own budget. New legislation was required. The Public Finance Management Act (PFMA), for example, was adopted with the objective of modernising financial management and enhancing accountability. A basic principle of this modernised financial model is that managers must be given the flexibility to manage, within a framework that satisfies the constitutional requirements of transparency and accountability. This is the context within which the PFMA was drafted. It regulates financial management and is applicable to national and provincial government departments. It sets out procedures for the efficient and effective management of all revenue, expenditure, assets and liabilities, and establishes the duties and responsibilities of government officials in charge of finances. Apart from section 38, which sets out the general responsibilities of accounting officers, the PFMA does not contain any more provisions directly related to the processes of public procurement. It is therefore not a statute dedicated solely to procurement or to supply-chain management practices.

Rather, it is an overarching statute regulating government finances at national and provincial level. The other pertinent statute is the Municipal Finance Management Act (MFMA), which is applicable to municipalities in the local sphere of government. The procurement provisions of the MFMA are similar to those of the PFMA, but contain more detail regarding the system. While the MFMA is also not a statute dedicated solely to procurement, Chapter 11 is dedicated to supply-chain management. It provides the legal framework for the implementation of an integrated supply-chain management process in local government. Section 112 prescribes that municipalities must adopt a supply-chain management policy which is fair, equitable, transparent, competitive and cost-effective. This section also sets out certain minimum aspects which the supply-chain management policy must cover. In terms of section 115, the accounting officer is responsible for the implementation of the supply-chain management policy. The accounting officer must also take all reasonable steps to ensure that mechanisms are in place to minimise the likelihood of fraud, corruption, favouritism, and unfair and irregular practices. The MFMA also contains provision for contract administration after the tender award stage. Section 168(1)(a) provides that the Minister of Finance may make regulations or guidelines applicable to municipalities regarding any matter that may be prescribed in terms of the Act. It is in terms of this section that the MFMA Regulations and Treasury prescripts pertaining to municipal supply-chain management are issued.

Of more relevance is the Preferential Procurement Policy Framework Act (PPPFA), whose purpose is to give effect to section 217(3) of the Constitution by providing a framework for the implementation of the procurement policy contemplated in section 217(2) of the Constitution. The PPPFA therefore provides a framework for the recognition of socio-economic components and the setting and evaluation of an award criterion. It does this by introducing a preference point system to be utilised in the evaluation of tenders. The PPPFA leaves it open to organs of state to decide what specific goals to award points for, but states that any specific goal for which a point may be awarded must be clearly specified in the invitation to submit a tender. The opinion has been expressed that the aim of the PPPFA is to enhance the participation of historically disadvantaged individuals and small, medium and micro-enterprises in the public-sector procurement system. The PPPFA itself states that specific goals may include "contracting with persons, or categories of persons historically disadvantaged by unfair discrimination on the basis of race, gender or disability and implementing the programmes of the Reconstruction and Development Programme". The provisions of the PPPFA are applicable to all levels of government.

The Local Government: Municipal Systems Act (LGMSA) provides that municipalities may procure the services of private persons to provide or perform a municipal service. The LGMSA makes it incumbent on municipalities, when they procure such services, to employ a competitive bidding process which complies with the relevant provisions of the MFMA. Sections 80, 81, 83 and 84 set out specific criteria to be met when a municipal service is provided through an external mechanism. With regard to the competitive bidding method, section 83(1)(d) requires that the selection process must make the municipality accountable to the local community regarding progress with selection and reasons for any decisions. These criteria are in addition to the criteria required to be met in terms of the MFMA and MFMA Regulations. The provisions of the LGMSA are therefore directly applicable to public procurement when the good or service procured is required to fulfil a municipal service.

The Promotion of Administrative Justice Act (PAJA) is also relevant, because its provisions and administrative law in general apply to public-sector procurement. To a large extent, administrative law has been codified by PAJA, which sets the parameters within which correct administrative action must be taken. The provisions of PAJA impact on the public tender process and become particularly relevant when an aggrieved bidder opts to challenge a decision of an organ of state. If public-procurement legislation does not contain satisfactory appeal or review mechanisms, then the aggrieved bidder will have no option but to resort to the use of PAJA.

Anti-corruption laws

As far as anti-corruption legislation in general is concerned, the Prevention of Bribery Ordinance (POBO) is the main statute in Hong Kong. Section 3 creates a general offence of soliciting or accepting an advantage without the general or special permission of the Chief Executive. "Advantage", as defined in section 1 of the POBO, includes almost any form of advantage or value, whether monetary or not. Section 4 creates a general offence of bribery in terms of which it is an offence for any person to offer an advantage to a public servant as an inducement in the performance of his/her duties. It is also an offence for a public servant to accept or solicit an advantage as an inducement to act in any official manner. The POBO in Hong Kong creates specific offences with respect to bribery. The provisions applicable to corruption in public procurement are contained in sections 5 and 6. The general offence of bribery in section 4 may also be applicable to government procurement. Section 5 relates to bribery for giving assistance with regard to contracts. The equivalent provision in the PCCA in South Africa is contained in section 12. As is the case in terms of the PCCA, the central elements for an offence in terms of section 5 of the POBO is the giving, acceptance or solicitation of an advantage and a concomitant act from the person so accepting or soliciting the advantage without lawful authority or reasonable excuse. Unlike section 12 of the PCCA, however, section 5 of the POBO seems to be confined to bribery in the public sector. Section 6 of the POBO relates to bribery for procuring the withdrawal of tenders. In terms of this section, any person who offers, accepts or solicits any advantage for the withdrawal of a tender or the refraining from making a tender without lawful authority or reasonable excuse shall be guilty of an offence. The South African equivalent of this section is found in section 13(1)(a)(iii) of the PCCA.  Unlike the PCCA in South Africa, the POBO creates an offence of unexplained wealth. Taking into account the nature of public procurement corruption, the creation of an illicit enrichment offence may be useful in assisting the prosecution. Section 10(1) of the POBO places the burden on the accused to offer a satisfactory explanation regarding his or her standard of living or wealth. This burden on the accused is a reasonable one, given that in such instances it may be only the accused who is in a position to offer a legitimate explanation regarding his/her wealth or standard of living. Section 12A also provides for confiscation orders to be sought from the court in respect of property or resources under the control of a person convicted of an offence under section 10(1)(b).

The POBO also provides for the protection of informers in section 30A. This section provides that the names and addresses of persons who have given information to the Commissioner with respect to any offence under the POBO will be protected. Section 30A(1)(b) provides that no witness shall be obliged to disclose the name or address of any informer or answer any question if the answer thereto could reveal the name or address of such an informer. Section 30A(1) also provides that the court shall be entitled to conceal from view or to obliterate any passage from any document or paper which has been tendered as evidence in order to protect the identity of an informer. It is submitted that such a provision may encourage persons to report acts of corruption. In terms of section 33A(1)(a-d) the court may of its own accord, if it is in the public interest to do so, order that a convicted person in a position of the director or manager of a public or private body, or a professional person, or a person who is a partner or manager in a private firm, may be prohibited from being so employed for a period not exceeding seven years. This prohibition relates to the conviction of any offence in Part II of the POBO, and is not confined to any particular offence. South Africa does not have a similar provision. Such a provision could be effective in discouraging the immediate re-entry of corrupt persons into the world of commercial activities.

The protection of informers in corruption cases is an important aspect of Hong Kong's anti-corruption legislation. Section 18 of the PCCA in South Africa creates an offence of unacceptable conduct relating to witnesses, in terms of which it is an offence for any person to intimidate, coerce or improperly influence a witness or use physical violence against a witness in order for such a witness inter alia to testify in a particular way, withhold testimony, or delay the testimony of such a witness. However, the PCCA does not offer any statutory protection to such witnesses, who may be informers and who may be subjected to intimidation for the disclosure of information relating to corruption offences. There are similarities between the provisions of the PCCA in South Africa and the POBO in Hong Kong. However, Hong Kong’s provisions relating to the possession of unexplained wealth, the protection of informers, and the prohibition of the Commission Against Corruption Ordinance establishes Hong Kong’s Independent Commission Against Corruption (ICAC) as envisaged by the Basic Law. The ICAC has been hailed as a powerful anti-corruption enforcement body, and as largely responsible for the reduction of corruption in Hong Kong. The ICAC is an "anti-corruption agency independent of the police force and civil service". In terms of section 5 of the ICAC Ordinance, the ICAC Commissioner is appointed by the Chief Executive Officer and is accountable only to the Chief Executive Officer. The terms of office of the Commissioner and the Deputy Commissioner are determined by the Chief Executive Officer. By contrast, South Africa does not have an independent agency dedicated to anti-corruption efforts. While the work of the ICAC has been commended and applauded, the legislative framework within which it operates has helped to create an environment within which it can be effective.