While the PPPFA has undergone some amendments, in its current position, the PPPFA represents a pivotal shift in government’s procurement processes. Specific goals are defined in the regulations in section 2(1)(d) of the Act and this may include contracting people or categories of persons, historically disadvantaged by unfair discrimination based on race, gender and disability, and the implementation of programmes of the Government’s Reconstruction and Development Programme. These regulations are designed to ensure procurement decisions foster inclusive growth, social justice, and long-term transformation for Historically Disadvantaged Individuals (HDIs), including black people, women, youth, and persons with disabilities.
- Setting Specific Goals
PPR 2022 requires public entities to establish measurable goals when considering procurement decisions. These goals are not only about preference points awarded to disadvantaged businesses but also to fostering actual tangible change. It is our view that the benefits of adopting the specific goals would be maximized when these specific goals are aligned with the mediumor long-term plans of the respective government institutions.
By means of an example, where a skills shortage is perceived in a certain area, the specific goals could be used not merely to transfer wealth, but a more tangible result in the form of skills transfer. Furthermore, specific goals may not guarantee the ultimate purpose of PPPFA as stated above, where there is no continues follow-up by the very institutions who issue the tenders. We acknowledge that the example offered may require additional administrative effort upon implementation and therefore note that our stating of same should at least serve as food for thought.
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Incorporation of Empowerment Criteria in Tender Evaluations
Under the 2022 regulations, tender evaluations now include specific criteria that empower HDIs. Procurement entities must consider the extent to which tenderers contribute to:
- Ownership and control: This includes giving preference to companies with a majority shareholding or significant ownership by HDIs, particularly black South Africans.
- Management control: Preference points are allocated based on the percentage of HDIs in senior management and decision-making positions.
- Skills development: Tenderers who invest in skills development, especially for HDIs, will receive preference points. This ensures that procurement contracts also contribute to long-term empowerment.
- Job creation and economic development: Tenders that promise substantial job creation or contribute to economic development in historically marginalized areas, such as townships and rural regions, will be prioritized.
These empowerment criteria aim to ensure that procurement does not only serve as a transactional process but as an active vehicle for social and economic transformation.
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Targeted Goals for Black Empowerment
The Broad-Based Black Economic Empowerment (B-BBEE) scorecard has been central to the preferential procurement landscape in South Africa. The Preferential Procurement Regulations 2022 build on this scorecard by introducing specific targets for various categories of black people, particularly:
- Black people (African, Coloured, and Indian individuals): Businesses with high percentages of black ownership and leadership are given priority in the allocation of government contracts.
- Women: Gender equity is prioritized, with a significant portion of preference points allocated to female-owned businesses.
- Youth and Persons with Disabilities: Specific targets are set to enhance the participation of young people and those with disabilities in the economy.
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Specific goals should, as far as possible, adhere to “SMART” principles:
As mentioned earlier, without some follow-up after an award and during the life of the tender, the specific goals will be reduced to cyclical goals without ‘tangible’ achievements.
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An example of such an inclusion of setting measurable goals in Tender Evaluations, as applied by the City of Cape Town (CoCT), is indicated below:
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80/20 Preference Point System
Within the category for persons who were historically disadvantaged by unfair discrimination, the CoCT identified three (3) specific goals with a corresponding allocation of maximum points. This being, Gender – maximum five (5) points, Race – maximum five (5) points and Disability – maximum three (3) points. Points are allocated on a grading scale based on the percentage of ownership within each specific goal. To claim the applicable points, bidders must submit supporting evidence in the form of the Company registration certificate, Central Supplier database report, B-BBEE certificate and a medical certificate for the applicable disability.
Under the Reconstruction and Development Programme, the CoCT identified one (1) specific goal which is the Promotion of Micro and Small Enterprises – Micro with a turnover up to R20 million and Small with a turnover up to R80 million. Seven (7) static points are allocated based on supporting evidence in the form of B-BBEE status level of contributor, Company registration certification and financial statements.
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90/10 Preference Point System
The only difference from the measured approach described in the paragraph above, is the lower allocation of points for the various specific goals. Namely, Gender – maximum three (3) points, Race – maximum three (3) points, Disability – maximum one (1) point and Promotion of Micro and Small Enterprises – maximum three (3) points.
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Preferential Procurement Regulations 2022 challenged in a Court of Law
As can be derived from paragraph 1(d) above, a measured approach is taken with quantifiable evidence required as proof to verify the points being claimed. The approach by CoCT to implement Specific Goals in line with the PPR 2022 was recently put to test via the court.
In the particular matter H & I Civil & Building (Pty) Ltd and Another v City of Cape Town and Others (59/2024), H&I Civils brought a wide-ranging substantive and procedural challenge to the legality of the new scoring system. Their central grievance was that which the CoCT reflected as the specific goals in the tender was not only irrational and unconstitutional but exclusionary in both its form and effect. H&I Civils further contended that the new scoring system for gender and micro & small enterprises was not measurable.
The relief sought by H&I Civils was to declare CoCT’s decision to introduce the new scoring system unlawful/invalid, and for CoCT to implement its previous scoring system which allocated preference points exclusively based on a bidders Broad-based Black Economic Empowerment (B-BBEE) contributor status level.According to the presiding Judge, the court was called upon to decide whether a new preferential procurement scoring system, introduced by CoCT, was lawful and consistent with the Constitution. The Judge proceeded to assess the mechanisms used by CoCT in developing the new scoring system. During such assessment, the court took note of the following:
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The fact that the CoCT, after the publication of the 2022 Procurement Regulations in November 2022, via its Supply Chain Management (SCM) Department, convened to address the impact of the regulations on the SCM Policy. Amendments to the SCM Policy were brought about after consideration to the kinds of specific goals the City viewed as important. During this process, broad consultation was done with other CoCT departments, including the Legal department and senior and junior counsel.
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Where CoCT was uncertain of any aspect, and when it required guidance on the legal landscape, it adopted a conservative approach. Decisions were only made after seeking legal advice. A binding implementation guideline for preferential procurement in terms of the new 2022 Procurement Regulations was developed. This guide suggests the manner of allocating preference points - inclusive of the identified specific goals.
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In its consideration of specific goals set out in the Implementation Guideline, the CoCT recognized the promotion of black and woman owned businesses as a meaningful opportunity to transformation. Previously experienced barriers to economic participation, unusually encountered by such businesses, would no longer be the cause for these businesses not progressing in their various industries due to the CoCT, by means of the specific goals, granting them opportunities to do business with CoCT.
According to the Judge’s assessment of the mechanisms used, it was found to be consistent with the features of an executive process of high-level policy formulation by an organ of state. Such was considered to be in line with the Constitution. This is re-iterated by the implementation of a guideline to establish uniformity in procurement processes which was binding on CoCT officials. Thus, the contention by H&I Civils that CoCT “holus boluses” adopted the position on specific goals articulated by National Treasury and slavishly adhered to their interpretation of the specific goals, was found to be without merit., CoCT had applied a methodical approach in the adoption of the new 2022 Procurement Regulations.
Additionally, in respect of the contention that the new scoring system was irrational and unlawful in that it awarded points for gender and micro & small enterprises which are not measurable, the Judge established, based on the weight of evidence, that the CoCT was indeed able to ascertain the percentage of female ownership of a company from the Company Registration Certificate or Central Supplier Database report. Furthermore, micro or small enterprise specific goals could be determined from the financial statements.
In the judgement handed down, the court held the view that the grounds advanced by H&I Civils in support of their amended relief was without merit. No basis was established to set the new scoring system aside, nor for the extraordinary proposition to grant relief directing CoCT to return to and implement its previous scoring system. The court application by H&I Civils was dismissed.
Thus, in view of the court’s rationale and the ultimate order, it is evident that the key factor that led to the favourable judgement for the CoCT, was its meticulous approach in addressing the impact of the 2022 regulations by having consultation with a broad group, including senior and junior counsel. Furthermore, obtaining legal advice and developing a binding implementation guideline was prudent. This judgement sets a precedent which can serve as a basis for other Organs of State to re-assess the way they adopted and implemented the specific goals.
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Overcoming Barriers to Implementation
While the Preferential Procurement Regulations 2022 offer a framework for fostering transformation, challenges remain in ensuring their effective implementation. Several barriers need to be addressed to ensure that these regulations yield meaningful results for HDIs:
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Capacity Building for SMMEs
Many SMMEs, especially those from disadvantaged backgrounds, lack the capacity to compete for government tenders. For the specific goals set out in the regulations to have real impact, there must be targeted capacity-building initiatives. This includes:
- Training and development: Offering skills development programs for businesses to better understand procurement processes, compliance, and how to meet regulatory requirements.
- Access to finance: Many HDI-owned businesses struggle to access financing to meet the scale required for larger contracts. Government and financial institutions must collaborate to create accessible funding options for these businesses.
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Monitoring and Enforcement
A robust monitoring and evaluation system is essential to ensure that public procurement contracts truly benefit the targeted HDI groups. This requires:
- Transparent reporting: Regular and transparent reporting on the number and value of contracts awarded to HDI businesses.
- Independent audits: Conducting audits to verify that suppliers who are awarded contracts are genuinely fulfilling their empowerment commitments.
- Sanctions for non-compliance: There must be strict penalties for companies that falsely claim compliance with B-BBEE or other empowerment criteria.
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Encouraging Long-term Sustainability
Empowering HDIs through procurement goes beyond simply awarding contracts, it is about creating a sustainable environment for these businesses to thrive. Public entities should:
- Support mentorship and networking: Facilitate mentorship programs and networking opportunities for emerging businesses, linking them with established firms that can help guide them to success.
- Local procurement policies: Encourage the procurement of goods and services from local businesses to stimulate the regional economy and build local supply chains.
Conclusion
The Preferential Procurement Regulations 2022 are a critical step in South Africa’s efforts to redress historical injustices and build a more equitable society. By setting specific goals for the inclusion of HDIs, the government can drive significant economic transformation. However, the success of these regulations depends on the effective implementation of targeted interventions, support for SMMEs, rigorous monitoring, and the development of sustainable business practices.
When properly executed, the regulations hold the potential to not only improve the economic prospects of HDIs but also contribute to a more diverse and inclusive South African economy that benefits everyone. It is also noted that the current PPR 2022 regulations will remain in place until the relevant provisions of the Public Procurement Act, 2024, and accompanying regulations take effect. There will most likely be significant revisions to the PPR 2022, as the South African government aims to further enhance economic transformation, improve transparency, and ensure a more inclusive and sustainable procurement system.
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References
Department of National Treasury. Preferential Procurement Regulations, 2017 [Online]. Available at: http://ocpo.treasury.gov.za/
Department of National Treasury. Preferential Procurement Regulations, 2022 [Online]. Available at: http://ocpo.treasury.gov.za/
Department of National Treasury. Implementation Guide: Preferential Procurement Regulations, 2022 [Online]. Available at: http://ocpo.treasury.gov.za/
H & I Civil & Building (Pty) Ltd and Another v City of Cape Town and Others (59/2024)
Available at: https://www.saflii.org/za/cases/ZAWCHC/2024/15.html