The Preferential Procurement Regulations Of 2022

The new regulations require organs of state to set quantifiable, transformative goals in tender documents. Bidders, in turn, who desire to maximize the available points at evaluation stage, do themselves a disservice when they fail to align themselves with these transformative goals. While criticism, from various quarters, has been hurled against the new regulations on the premise that the referred regulations have caused the potential ignoring of requirements of the Broad-Based Black Economic Empowerment (B-BBEE) Act (by state organs), the National Treasury, in a media statement dated 08 November 2022, clarified that this view is flawed and that the government remains committed to transformation and empowerment as envisioned in Section 217 (2) of the Constitution. The PPR, effective 16 January 2023, aims to comply with the Constitution, PPPFA, and the Constitutional Court Judgement[1] of February 2022. In addition, the PPR aims to provide a framework for government entities to implement procurement policies that prioritise historically disadvantaged individuals (HDI) and businesses, including black-owned, women-owned, and youth-owned enterprises to fast-track transformation in the interim.
 
Although the 2022 Preferential Procurement Regulations serve a much-needed transformative purpose, it is not intended to be a long-term solution. The National Treasury’s description hereof is that it is a “placeholder” until the Public Procurement Bill (the Bill) is finalised. The Bill proposes to repeal the PPPFA, thus clearing the way for the Minister of Finance to prescribe a new framework for preferential procurement.
 
In our previous article on “Tips for submitting a responsive tender”[2], tenderers are advised on the do’s and don’ts when submitting a tender. Though it is important for a tender to be responsive, the tenderer also has to be mindful of the several exclusions of the new PPR of 2022, which will assist HDI tenderers. An example of such an exclusion is the fact that organs of state are no longer permitted to apply “pre-qualification criteria” to tenders.
 
A further exclusion is the awarding of the points based on the B-BBEE level in terms of the application of the 80/20 or 90/10 points system. If the 80/20 preference point system applies, a maximum of 20 points may now be awarded to a tenderer meeting the advertised specific goals and, if the 90/10 preference points system applies, a maximum of 10 points may now be awarded to a tenderer meeting the advertised specific goals. These specific goals include contracting with persons or categories of persons historically disadvantaged by unfair discrimination based on race, gender, and disability, and implementing the Reconstruction and Development Programme (RDP) programs. In the previous (2017) PPR, the allocation of the 20 or the 10 points was solely done in terms of the B-BBEE Status Level Contribution of a tenderer.
 
Another major exclusion is the application of the Local Content criteria. In the new 2022 Regulations, organs of state are not required to indicate Local Content. Pre-qualification and sub-contracting are also no longer required. Entities are not required to enforce sub-contracting as a qualification criterion. However, to score maximum preference points, tenderers might consider sub-contracting Small- and Micro Enterprises in terms of the RDP Goals, as this might be a specific goal set by the state entity.
 
It should be noted that while the 2022 Regulations do not expressly refer to B-BBEE or its related concepts as defined in the B-BBEE Act, 2003, the B-BBEE Commission, through its Senior Manager: Stakeholder Relations and Communications, Mr. Mofihli Teleki, has confirmed in a Media Statement released on 09 November 2022, that the regulations have not removed the obligation for organs of state and public entities to implement the B-BBEE Act and its requirements concerning preferential procurement. Therefore, in implementing preferential procurement, an organ of state or public entity will have to comply with both the requirements of the 2022 PPPFA Regulations and the B-BBEE Act, which means that B-BBEE criteria will still be part of the 20 and 10 points under the 80/20 and 90/10 procurement system that currently empowers organs of state and public entities to set a goal, which includes promoting access to black people and black enterprises to procurement opportunities in organs of state and public entities.
 
Though the Preferential Procurement Regulations were introduced to promote economic empowerment for previously disadvantaged individuals, it is however evident that high levels of fraudulent and corrupt activities have led to our country having being greylisted[3]. The logical effects of such greylisting are harmful to our economy and society. The effects are considered significant and have the potential to hinder the country's progress and development.
 
With the introduction of the Preferential Procurement Regulations, those resistant or reluctant to the ideal of transformation will double down on their attempts to retard any meaningful transformation objective. Fraudulent activities can undermine the objectives of these regulations and result in the loss of public funds. Some common types of fraudulent activities include:

• Fronting: When a company claims to be a previously disadvantaged individual or group, but in reality, the ownership and control remain with non-disadvantaged individuals.
• Collusion: When two or more bidders agree to work together to artificially inflate the prices of goods or services.
• Bid-Rigging: When bidders conspire to manipulate the bidding process to ensure that one of them wins the contract.
• Kickbacks: This is when a bidder offers a bribe to a government official in exchange for being awarded a contract.
• False Declarations: This is when a bidder makes false declarations about their ownership, qualifications, experience, or other relevant information.
• Non-Compliance with Regulations: This is when a bidder does not comply with the regulations, such as failing to meet the required B-BBEE (Broad-Based Black Economic Empowerment) scorecard, submitting fraudulent documents or certificates, or not adhering to procurement procedures.

 
These practices are illegal and can have serious consequences for both the perpetrators and the government. Stakeholders need to be aware of these types of fraudulent activities and take measures to prevent and combat them. Reporting any suspected instances of tender fraud to the relevant authorities can help to promote transparency and accountability in the procurement process and safeguard the interests of the public. As per the PPPFA Act of 2001(15)(2), the following penalties can be imposed on perpetrators:

1. Recover all costs, losses or damages it has incurred or suffered as a result of that person’s conduct.
2. Cancel of the contract and claim any damages which it has suffered as a result of having to make less favourable arrangements due to such cancellation.
3. Impose a financial penalty more severe than the theoretical financial preference associated with the claim which was made in the tender.
4. Restrict the contractor, its shareholders and directors from obtaining business from any organ of state for a period not exceeding 10 years.

 
In conclusion, the 2022 Regulations provide some room for organs of state to incentivise key development priorities, but B-BBEE cannot be fundamentally excluded as a consideration in the allocation of preference points. It is crucial to be mindful that prescribed specific goals must be fair, equitable, and transparent as required by Section 217 (1) of the Constitution.
 
Additionally, the eagerly awaited Bill is expected to be introduced in Parliament. Finalisation is likely to be time-consuming and to attract active public participation by numerous stakeholders. While the 2022 Regulations have been introduced as a "placeholder," it is likely to be in place for longer than anticipated.
 
Furthermore, there is an urgent need for the government, private sector, and civil society to collaborate and address the root causes of corruption and promote good governance. To achieve this goal, it is essential to strengthen the institutional capacity for preventing and combating corruption, promote transparency and accountability, and foster a culture of ethical behaviour and integrity. Only through sustained efforts and collective action can South Africa overcome the challenges posed by corruption and realise its full potential as a prosperous and inclusive nation.
 
For more information, please get in touch with your local Moore Firm.