New Terms and Conditions for Public Tenders from 1 April

The long-awaited changes to the South African Preferential Procurement Regulations could have a significant impact on the way government tenders are put out after 1 April 2017. National Treasury published the changes last week Friday and – as always – the new terms and conditions are inconsistent, flawed and leave a lot of room for speculation and uncertainties.

The changes to the Public Preferential Procurement Regulations made now are mostly of a technical nature and the more comprehensive reform is still to be expected, latest when the envisaged overarching Public Procurement Act is published for comment later this year.

However, the changes to the regulations will impact on those companies doing business with the State.

h3. B-BBEE Recognition Level

The updated Regulations dictate the manner in which government departments and state entities such as ESKOM, PRASA and TRANSNET have to recognise black ownership and Broad-Based Black Economic Empowerment (B-BBEE) contributor recognition levels when considering tenders and deciding who to buy goods and services from.

As a general principle, the Regulations require that price is the dominant basis on which government makes procurement decisions, but the regulations allow organs of state to include B-BBEE contributor recognition levels and their qualification as value-adding enterprises as criteria for a small percentage of the overall scoring and ranking of tenders. The changes made require organs of state now to award 20 points out of a total of 100 for the B-BBEE contributor recognition level for all tenders valued at less than ZAR 50m. For all tenders with a value above only 10 points out of 100 may be awarded for this criterium.

Other important changes to the existing rules include now:

# clarity on when black ownership can be used as a “pre-qualification” criteria;
# the exclusion of 51% black ownership of large businesses as an acceptable pre-qualification criteria;
# additional requirements for applying a “functionality” threshold;
# the regulation of price negotiation;
# the regulation of sub-contracting for contracts above ZAR 30m; and
# a requirement that any objective criteria relied upon is published in the tender documents.

There were also areas where the National Treasury failed to provide clarity on matters which have been the subject of debate and conflicting court judgments in the last few years. These included whether the criteria specified for cancellation of a tender constituted a closed list and whether a threshold for local content could be published in a tender in the absence of standards to be published by the Department of Trade and Industry (DTI).

There was also no clarity on how sub-contracting arrangements for large construction contracts should be treated for black economic empowerment purposes, but we are not surprised as this is similar to other recent pieces of legislations apparently again done in a rush and without proper review by the professional sector, a typical piece of ANC patchwork legislation!

Let’s hope for the proposed Act to be better researched and defined!

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