Commentary by Andrew Molver As published on BDLive. On 14 June 2016, National Treasury published new draft Preferential Procurement Regulations View Here in terms of the Preferential Procurement Policy Framework Act 5 of 2000 (“the Procurement Act”). The draft regulations, once finalised, will replace the 2011 Preferential Procurement Regulations.
Arguably the most notable and controversial of the draft Regulations is Regulation 10, which purports to grant organs of state an entitlement to apply “pre-qualifying criteria in the evaluation of a tender”. Without limiting the nature of such pre-qualifying criteria, Regulation 10 specifically permits an organ of state to apply a pre-qualifying criterion which requires a tenderer to have “a stipulated minimum B-BBEE status level”. A tender that fails to meet a pre-qualifying criterion will not be an acceptable tender.
The effect of Regulation 10, specifically its creation of an entitlement to exclude bidders which do not have a stipulated B-BBEE status level, stands to cause various bidders to be excluded from tender processes right at the very outset, and even before such bidders are evaluated in respect of the functionality of their respective bids. This appears to contradict the provisions of the Procurement Act (in terms of which the draft Regulations have been published), which specifically provides that a maximum of 10 or 20 points out of 100 (depending on the value of the tender) may be allocated for so-called “specific goals” (such as contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability), while the remaining 90 or 80 points (as the case may be) must be allocated for assessing price. Moreover, in terms of the Procurement Act, the scoring of tenders on price and preference according to the aforementioned 80/20 or 90/10 ratios must be conducted in respect of all bidders which meet the minimum functionality threshold.
By permitting organs of state to apply a pre-qualification criterion which requires all tenderers to have a minimum B-BBEE status level, the draft Regulations circumvent the limitations imposed by the Procurement Act as to what weighting is to be attached to a tenderer’s B-BBEE status in evaluating and awarding a tender.
Whereas under the Procurement Act it is expressly indicated that a maximum of 10 or 20 points (depending on the value of the tender) can be allocated for B-BBEE status, the draft Regulations elevate the importance of B-BBEE status to the extent that it can preclude certain bidders from tendering at all, irrespective of how functional and cost effective such bidders might be. This flies in the face of the Procurement Act’s clear intention to promote price as the most determinative factor in awarding government tenders, with the matter of “preference” playing a substantially smaller role.
Entities which in the past have managed to win substantial tenders notwithstanding their B-BBEE status, based simply on account of the quality of their product/service offering and their competitive pricing, may now find themselves automatically precluded from competing for government tenders where a minimum B-BBEE status level is imposed as a pre-qualification criterion. This will obviously come as a concern to many.
The draft Regulations are open for comment until 15 July 2016, following which the final draft Regulations (taking into account public comments) will be submitted for parliamentary approval and, thereafter, promulgated by the Minister of Finance.
Andrew Molver and Michael Gwala are both partners at Adams & Adams, and specialise in administrative law and constitutional litigation. Their teams routinely advise clients, and lodge submissions, in respect of draft legislation and regulations.