AN EVALUATION OF THE IMPLEMENTATION OF THE PREFERENTIAL

PROCUREMENT POLICY FRAMEWORK ACT (No 5 OF 2000) WITH REFERENCE TO SELECTED MUNICIPALITIES IN THE PROVINCE OF THE

EASTERN CAPE

BY

NANDIPHA NANO

Submitted in partial fulfilment of the requirements for the degree of

Master of Public Administration

AT

Nelson Mandela Metropolitan University

Supervisor: Prof. R. S. Masango

December 2008

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DECLARATION BY STUDENT FULL NAME: Nandipha Nano STUDENT NUMBER: 206015534 QUALIFICATION: Master of Public Administration DECLARATION: In accordance with Rule G4.6.3, I hereby declare that the above-mentioned treatise/ dissertation/ thesis is my own work and that it has not previously been submitted for assessment to another University or for another qualification. SIGNATURE: ___________________________________________________ DATE: 25 March 2009

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ACKNOWLEDGEMENT

The successful completion of this research project would have been impossible

without the advice, assistance and support of other people.

My indebtedness and gratitude is dedicated especially to the following people:

• My Supervisor, Prof Masango, you motivated me whilst I was on the brink of

giving up. Your support, supervision, motivation, constructive criticism and

guidance resulted into the existence of this product.

• My parents – Velile and Notheko, sister Buli and brother Siv for your support

whilst I persuaded my dream.

• My daughter – Zinny “Hamle” you never doubted my ability to succeed. I

hope this achievement will be a source of inspiration.

• To the Nano Family, relatives and friends, I couldn’t be with you when you

needed me most, thanks for understanding.

• To all Municipal Managers who approved my research and to respondents

who provided the empirical data, you made my studies a success.

• To my fellow students (Niki) in particular you gave me strength to carry on.

THANKS GOD, ALMIGHTY, YOU HEARD ALL MY PRAYERS It is Well With My Soul.

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TABLE OF CONTENTS CHAPTER 1- GENERAL INTRODUCTION 1 1.1 The Introduction 1 1.2 Background and Rationale 1 1.3 Objective of Study 3 1.4 Problem Statement 4 1.5 Research Methodology 5

1.5.1 Primary Research Options 5

1.5.2 Secondary Research Options 5 1.6 Literature Review 6

1.6.1 Evolutionary Development of Supply Chain 8 Management 1.6.2 Reforms in Procurement Management in 8 South Africa 1.6.3 Regulatory Guidelines for Supply Chain 8 Management

1.7 Ethical Consideration 10 1.8 Definition of Terms 10 1.9 Overview of Chapters 11

CHAPTER 2 - LITERATURE REVIEW 13 2.1 Introduction 13

2.2 Legislative Environment 13

2.3 Procurement defined 16

2.4 Implementation of the Preferential Procurement Policy 17

Framework Act (Act 5 of 2000) by municipalities

2.4.1 Procurement Reform 18

2.4.1.1 Objectives of a Reformed Procurement System 18

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2.4.2 Policy Development and implementation 25

2.4.3 Procurement methods 26

2.4.3.1 Uniformity in Tender Procedures 26

2.4.3.2 Management of Procurement Requirements 27

2.4.3.3 Petty Cash Purchases 28

2.4.3.4 Written or Verbal Quotations 29

2.4.3.5 Formal Written Quotations 31

2.4.3.6 The Preferential Point System 32

2.4.3.7 Competitive Bidding 32

2.4.3.8 Handling of Bids 33

2.4.4 Committee System for Competitive Bids 33

2.4.5 Duties of Committees 33

2.4.5.1 Bid Specification Committee 33

2.4.5.2 Bid Evaluation Committee 36

2.4.5.3 Bid Adjudication Committee 37

2.4.6 Subcontracting and Joint Ventures 38

2.5 Monitoring & Evaluation 39

2.5.1 Duties of the Accounting Officers 39

2.5.2 Monitoring Organisations 41

2.5.2.1 Auditor General 42

2.5.2.2 Procurement Compliance Office 43

2.5.3 Other Remedies 43

2.6 Challenges Facing Procurement Process 44

2.6.1 Corruption and Collusive Tendering 48

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2.7 Conclusion 49

CHAPTER 3 - RESEARCH METHODOLOGY 52 3.1 Introduction 52

3.2 Research Question 52

3.3 Objectives of study 52

3.4 Research Design 53

3.5 Research methodology 54

3.6 Target Population 54

3.7 Sampling method 55

3.8 Data Collection method 55

3.9 Conclusion 56

CHAPTER 4 - DATA COLLECTION AND INTERPRETATION 57 4.1 Introduction 57

4.2 Research Paradigm 58

4.3 Methods of data collection 58

4.4 Data collection procedure 59

4.5 Data analysis and interpretation 60

4.6 Conclusion 71

CHAPTER 5 - CONCLUSION AND RECOMMENDATIONS 72 5.1 Introduction 72

5.2 Main findings and recommendations 72

5.2.1 Competence of Supply Chain Management Unit staff 74

5.2.2 The Role of Local Private Sector and Academic 75

Institutions

5.2.3 Joint Venture Agreements 78

5.2.4 Capacity availability versus Budget availability 79

5.2.5 Risk Capital 80

5.2.6 Social Responsibility by Private Sector 81

5.2.7 Engaging retired Skilled Citizens 81

5.2.8 Monitoring and Control System 82

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5.3 Conclusion 84

REFERENCES 86

ANNEXURE: A ANNEXURE: B

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CHAPTER 1

GENERAL INTRODUCTION 1.1 The Introduction This chapter presents a general introduction to the study entitled; An

evaluation of the implementation of the preferential procurement policy

framework Act (No. 5 of 2000) with reference to selected municipalities in the

Province of the Eastern Cape. It presents, among others, a background and

rational to the study, objectives, literature review, and an overview of

chapters.

1.2 Background and Rationale South Africa is in its second decade of democracy. Since the introduction of

democracy in 1994, the South African government and its citizens are making

strides into overhauling the country to make it one of the best habitable

countries in the world. All these changes are accompanied by challenges

regarding the types of resources required to accomplish this when delivering

services to the communities. In order for the government to accomplish this,

systems and procedures which are supported by legislation and operational

frameworks should be developed, implemented, monitored and reviewed

when necessary. Legislation which has been developed to guide and regulate

public procurement includes the Preferential Procurement Policy Framework

Act (Act 5 of 2000).

The previous procurement approaches had various fallacies. For example,

there was no accountability, no transparency, no equitable distribution of

economic resources and no supporting structures to oversee the process. The

government then realised the need for having an integrated approach towards

public acquisition of goods and services. The public service should operate in

an environment where there will be fair, equitable, transparent, competitive

and value for money in procurement.

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The objective of the Preferential Procurement Policy Act (Act 5 of 2000) is to

give effect to section 217(3) of the Constitution of the Republic of South Africa

(Act 108 of 1996). Section 217 (3) stipulates that national legislation must

prescribe a framework within which the procurement policy may be

implemented. Preferential Procurement Policy Framework Act (Act 5 of 2000)

aims at redressing the past racial imbalances, where race and gender were

used to control productive resources.

In order to address the shortfalls of the previous systems which failed to

provide equal competition opportunities to all the people of South Africa, the

mandate, as stipulated in the amended Section 217 of the Constitution of the

Republic of South Africa (Act 108 of 1996), has been implemented. This

section calls on government and organs of the state to apply a preference

point system to enhance and give preference to the historically disadvantaged

individuals or designated groups, who in the past, were victims of unfair

discrimination on the basis of race, gender or disability.

The Preferential Procurement Policy Framework Act (Act 5 of 2000) and its

related regulations and systems emanate from Section 217 (3) of the

Constitution of the Republic of South Africa, (Act 108 of 1996). The

government has, since 1995, started engaging in a number of initiatives with

the purpose of restructuring the procurement.

One of the initiatives was the development of the Green Paper on Public

Sector Procurement Reform in South Africa in 1997. This paper is a

discussion document which contains various proposals aimed at achieving the

objectives of good governance, developing and utilising the country’s human

resources potential to the full, and encouraging a well-developed and

competitive business sector

(http://www.info.gov.za/greenpapers/1997/publicproc.htm).

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Subsequent to the Green Paper on Public Sector Procurement Reform the

government published the Preferential Procurement Regulations in 2001, in

terms of Section 5 of the Preferential Procurement Policy Framework.

The government’s aim was to elicit contributions and discussions from role-

players and interested parties. These inputs are crucial in a country that is

committed to democracy.

It can be deduced that the Preferential Procurement Policy Framework is a

tool that is intended to provide direction and guidance to public officials when

they engage in the acquisition of goods and services whilst giving leverage

and preference to those who have been victims of the past imbalances.

There is a perception that business opportunities favour individuals and

businesses that are well established and the emerging business owners are

marginalised. The reforms in the procurement processes that have been put

in place are intended to ensure that there is equality, transparency and

accountability in the allocation of business opportunities. Preference has to be

afforded to the previously marginalised people to play a role in the public

sector procurement and enhance income generation. The aims of the

Preferential Procurement will be defeated if there are no systems to control

and monitor the engagement of historically disadvantaged individuals. The

affirming of such business owners should be viewed as a tool for the

distribution of wealth, job creation and a poverty alleviation strategy from the

side of government. The rationale for the research, therefore, is to establish

whether the historically disadvantaged individuals’ lives are improving and

bringing about sustainable economic development in their lives.

1.3 Objective of Study The objective is to determine whether the promulgation of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000) is improving the quality of

lives of South Africans and whether it is bringing lasting economic

transformation with reference to designated groups, HDI’s in particular. The

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policy that will be used to guide the procurement process must not be in

contravention of the current financial management legislation.

For the purpose of this study the legislation applicable is the Municipal

Finance Management Act, Act 56 of 2003. Chapter 11, Section 111 of the

MFMA, clearly refers to the requirement stated above. Therefore correlation

between the legislation and the procurement policy should exist.

There specific objectives of this research are:

• To establish the level of awareness of the officials responsible for the

procurement about the constitutional mandate of implementing the

Preferential Procurement Policy Framework Act.

• To establish the institutional arrangement for the implementation of the

Preferential Procurement Policy Framework Act within selected

municipalities.

• To analyse and evaluate the processes of selecting and awarding tenders

with reference to selected cases within the selected municipalities.

• To establish the extent to which the implementation of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000) contributes towards

the empowerment of the Historically Disadvantaged Individuals (HDI’s)

within the selected municipalities.

• To evaluate the effectiveness of the implementation of the Preferential

Procurement Policy Framework in terms of service delivery.

In order to arrive at the answers, it becomes important that a careful and

systematic analysis of the implementation of the supply chain management

processes by the public sector be carried out in the form of research

.

1.4 Problem Statement There are many allegations, relating to irregularities in the procurement

processes, which are levelled to South African municipalities. They tend to

feature in the media reports. These allegations include bid-rigging, provision

of kickbacks and fronting in the procurement processes. If indeed this is the

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case, the matter should be addressed in order to ensure that corruption is

eliminated and the objectives of the Preferential Procurement legislation

pursued such that the intended beneficiaries of the preferential procurement

process actually benefit.

The research study will be conducted to determine whether the Preferential

Procurement Policy Framework Act (Act 5 of 2000) is applied to allocate

business opportunities to small, medium and micro enterprises owned by

HDI’s and communities previously marginalised by the imbalances of the past.

The communities referred to are those who, due to apartheid policies, could

not own business, who are females and those who have a disability.

1.5 Research Methodology Primary and Secondary information will be used as basis for research.

1.5.1 Primary research options

The most common primary research resources are:

• Social surveys:

Questionnaire surveys

Interviews – informal or structured

• Observation:

Participants overt or covert (masked identity)

1.5.2 Secondary research options

• Published statistics: census, housing and social data and

so on.

• Published texts: theoretical work, secondary analysis by

experts and reports

• Media: documentaries as source of information

• Personal documents: diaries

http://ec.hku.hk/acadgrammar/report/resProc/research.htm

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Mouton, (2006:69), defines Primary Information in research as the

researcher’s own data, whether you have collected it yourself of whether it

already exists in one form or another, usually available in textual information

(qualitative data) and numeric information (quantitative data).

According to David and Sutton, (2004: 69), primary research involves the

researcher undertaking the data collection him/herself, and the secondary

data involves the researcher identifying an existing dataset that has been

collected from a previous study.

In this study the researcher undertook to search for existing information from

various sources and used this data as a basis for own research which

involved the use research tools, a sample and a research method. The

qualitative approach was applied and self-administered questionnaires were

used to solicit information relating to the objectives of this study.

The population was municipalities in the Province of the Eastern Cape and

the sample comprised of selected municipalities and certain selected

municipal employees within the selected municipalities with a particular focus

in the supply-chain management unit.

The researcher personally collected data by telephone interviews, structured

face-face interviews, distributed and collected questionnaires and made

personal visits to supply-chain management departments or divisions in

targeted municipalities.

1.6 Literature Review Van der Walt, Van Niekerk, Doyle, Knipe, and Du Toit, (2002: 7) state that the

government is expected to create conditions within which each individual in

the country, but especially the less privileged members of the community, can

develop his or her own social welfare and physical well-being.

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The regulatory framework is in the form of Legislation, Green Paper,

Regulations and Procedures that provide steps to be followed in the

affirmative public procurement.

According to Van der Walt et al, the constitution impacts on procurement in

two ways. Firstly, it affects the principles of good governance with reference to

Section 195 (1) and secondly, the procurement must be done in a fair,

equitable, transparent, competitive and cost-effective manner which takes into

consideration the provision of preference-tendering for the categories of

previously disadvantaged individuals.

What is known to be happening frequently within the ranks of the public sector

are the annual audits aimed at verifying how the rands and cents of the state

have been received and expended. This is called the ex-facto auditing which

normally focuses on the availability of all source documents to substantiate

the transaction, authorisation and adherence to pertinent legislative

framework. The audit processes does not go deeper into determining how the

preferred service provider has been solicited; authenticity of the bid

adjudication process; structures involved in the process, declarations and all

other related standard requirements. It is biased towards financial accounting

and financial management. Therefore compliance to procurement process

standards are seldom audited and reported to except when there is a court

battle between the service provider and the government department or other

organ of state. The study is trying to unravel the build-up process towards

what is called the affirmative procurement where preferential point awarding

system has been applied.

The primary sources to be used in the literature review will include

contemporary records, confidential records, public reports and expressions of

opinion (editorials), government documents (regulations; policies).

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1.6.1 Evolutionary Development of Supply Chain Management Hugo, W. M. J.; Barderhost-Weiss, J. A.; Van Biljon, E. H. B.; (2004: 13)

states that there are four phases of development in supply chain of which one

of them refers to the establishment of the planning framework and process

designs that represents the holistic view of an integrated approach to supply

chain management, develop and solidify the skills of the cross functional

teams.

It can be deduced that it is very important for the government and the organs

of state to ensure that there is adequate resources to develop an integrated

process plan to drive the affirmative procurement process to ensure that the

organisational objectives and targets are achieved.

1.6.2 Reforms in Procurement Management in South Africa Van der Walt (2002: 26) states that the government systems reviews have

suggested that a common framework should be created within which all public

institutions should conduct their procurement activities. The framework should

include uniform treasury norms, standard procurement process; common

performance measures. The key principle underlying the reforms is value for

money; commitment to competition and commitment to best practices and

innovative procurement processes.

To date so much has developed around the country, the paradigm shift is

visible, and the new public management approach has been adopted which

includes the generic management tasks. The generic duties of management

have been in practice in the private sector for decades and as such those

techniques are being implemented by government.

1.6.3 Regulatory Guidelines For Supply Chain Management The regulatory framework is in the form of Legislation; Green Paper;

Regulations and Procedures that provide steps to be followed in the

affirmative public procurement.

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According to Van der Walt et al, the Constitution impacts on procurement in

two ways, firstly it affects the principles of good governance with reference

section 195 (1) and secondly the procurement must be done in a fair;

equitable; transparent, competitive and cost effective manner that takes into

consideration provision for preference tendering for the categories of

previously disadvantaged individuals.

The Green Paper on Public Procurement Reform published in 1997 indicates

government commitment to use as an instrument to achieve socio-economic

objectives and to contribute to the transformation and democratisation of

South African society. The government therefore seeks to implement a policy

that would support international best practice also introducing new

procurement management concepts such as affirmative procurement policy;

life cycle costing, value for money and appropriate risk management

strategies that would respond to the needs of the South African society.

The following legislation has a bearing in procurement processes:

Chapter 11 of the Municipal Finance Management Act (Act 56 of 2003)

also reiterates the need for public offices, municipality in this case to

develop and implement a Supply Chain Management which policy

seeks to accommodate the objectives of the Act whose objectives are

defined above.

Broad Based Black Economic Empowerment Act (Act 53 of 2003)

whose objective is first and foremost to promote economic

transformation such that black people participate in main stream

economy.

Construction Industry Development Board Act (Act 38 of 2000) whose

objective is to provide for the establishment of the Construction

Industry Board to implement an integrated strategy for the

reconstruction, growth and development of the construction industry

and to provide matters connected therewith.

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Preferential Procurement Policy Framework Act (Act 5 of 2000) aims at

redressing the past racial imbalances where race was used to control

productive resources, who are females and have been discriminated due to

their physical disabilities.

1.7 Ethical Consideration Ethical consideration involves the code of conduct of the researcher before

and after the study has been completed. The researcher must determine the

right and the wrong approach when engaging in the research activity. The

manner in which people conduct themselves says so much about one’s

behaviour, how they communicate and interact with one another. Ethical

behaviour plays a very important role in society. Behaviours in most cases

stem from prior learning, discipline exercised by parents and other associates.

According to Neuman (2006: 129 - 141) the research has an ethical-moral

dimension towards the researcher who has the moral and professional

obligation even if the research subjects are unaware of or unconcerned about

ethics. To this effect, the ethical principles that the researcher must follow will

include commitment such as:

• Never cause physical or irreversible harm, psychological

abuse and legal jeopardy harm to subjects;

• Prior voluntary consent, no humiliation, degrading or

release of harmful information.

1.8 Definition of Terms In order to eliminate confusion relating to the use of terms, the meanings

attributed to certain selected terms and phrases in this document are briefly

described below.

“Affirmative Procurement” comprises participative programmes aimed at

the engagement of small, medium and micro-enterprises owned by previously

disadvantaged categories of people or companies. It aims to increase the

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volume of work available to the poor and marginalised sectors of the

community falling within this definition.

“Disability” means a permanent impairment of a physical, intellectual or

sensory function, which results in restricted, or lack of the ability to perform an

activity in the manner, or within range, considered normal for a human being.

“Historically Disadvantaged Individuals – (HDI)” refers to a South African

citizen or any service provider who, due to the apartheid policy had no

franchise prior to the introduction of the Constitution of the Republic of South

Africa, 1993, (Act 200 of 1993), who is a female and/or who has a disability;

provided that a person who obtained South African citizenship on or after the

coming into effect of the Interim Constitution, is deemed not to be an HDI.

“Procurement” means the acquisition of goods and services occurring daily

in all levels of government. Craythorn, (2003: 297) defines procurement in

simple terms as the acquisition of goods and services which occurs virtually

daily at all levels of government.

“Supply Chain Management” is a management philosophy aimed at

integrating a network of upstream linkages in performing a specific process

and activities that will ultimately create and optimise value for the customer in

the form of products and services which are specifically aimed at satisfying

customer needs.

1.9 Overview of Chapters Chapter 1 of the study provides a general background to the study. It deals

with aspects which include: background and rationale to the study, problem

statement, and research objectives.

Chapter 2 focuses on literature study.

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Chapter 3 focuses on research methodology of the study. In this chapter, an

explanation relating to data collecting instruments and data collection

procedure is given.

Chapter 4 deals with data analysis of the study. Chapter 5 concludes the study by providing the findings and

recommendations of the study.

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CHAPTER 2

LITERATURE REVIEW

2.1 Introduction The government of any country is the largest buyer and consumer of goods

and services to meet the primary objectives of delivering according to the

needs of the citizens and also requires goods and services for its operations

and existence. The government has to procure services from various sources

to implement its programmes.

There are various statutes that have been enacted to regulate government

programme implementation. In South Africa the supreme law is the

Constitution of the Republic of South Africa Act (Act108 of 1996). The statutes

that regulate the operations of the government are the products of the

constitution. The Preferential Procurement Policy Framework Act (Act 5 of

2000) is one such product.

It is vital to examine the nature and scope of the legal framework to examine

the impact of the enforcement of legislation by state officials. The study

evaluates the extent to which the effect on Section 217 of the Constitution is

with special reference to the implementation and monitoring of the Preferential

Procurement Policy Framework Act (Act 5 of 2000) within the municipal

governance sector.

2.2 Legislative Environment Considering the democratic dispensation in South Africa, the government has

to ensure that the lives of the majority of its citizens are changed for the

better. Therefore, the magnitude of government procurement cannot be over-

emphasised. The Preferential Procurement Policy Framework Act is one of

the statutes that have been passed by parliament which seek to reverse the

discriminatory laws, policies and practices of the past and overhaul

procurement processes, while empowering the citizens and reducing

corruption.

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The legislation attempts to balance business ownership and encourage the

participation of previously marginalised communities in the mainstream

economy. Affirmative procurement has been identified as a tool that can bring

about economic development and allows for the participation of previously

disadvantaged individuals. Similarly, Van Weele (2000: 325) supports and

argues that government purchases often serve political objectives, whilst

there is a need to utilize their financial resources as efficiently as possible.

Reddy (1995:40) states that, when addressing infrastructural backlogs in

terms of the Reconstruction and Development Programme (RDP), local

authorities should encourage small businesses in the manner in which

contracts are let. He argues that the process of tendering can be modified to

allow greater access for small enterprises, dividing large contracts either

geographically or by size, to allow small, community-based enterprise the

opportunity to bid. Municipalities should also have the opportunity to

demonstrate their capacity on small jobs, and then be allowed to progress

rapidly to bid for larger projects. They could also insist on labour intensive

bids to undertake capital works and require contractors to employ people from

the local community.

Both Van Weele and Reddy support the reasoning by the South African

government that its political objective is to focus on business opportunities for

those who, due to past imbalances and discrimination were unable to

participate actively in the economy. To achieve positive outcomes the

government is inclined to implement affirmative procurement processes which

are supposed to give priority to black business owners.

It can be deduced that the primary objective of the government and

municipalities is to create an environment that will enable small, medium and

micro enterprises and emerging businesses to have meaningful participation

in public procurement. Meaningful participation can be achieved by giving

priority to tenders and bids received from businesses owned and controlled by

those previously disadvantaged by unfair discrimination.

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A suitable public procurement intervention strategy should be implemented,

based on the Preferential Procurement Policy Framework Act, (Act 5 of 2000),

so that the political objectives stated above can be achieved. The enactment

of the Preferential Procurement Policy Framework Act clearly provides

confirmation that the government is addressing the past imbalances and

challenges and has undertaken a radical overhaul of its mandate, introducing

many new and innovative methods to service delivery and getting closer to its

constituencies.

The Preferential Procurement Policy Framework Act, (Act 5 of 2000) is

provided in accordance with the provisions of the Constitution of the Republic

of South Africa Act 108 of 1996 and other subsequent legislation.

The constitutional provisions stated in Section 217 (1) of the Constitution of

the Republic of South Africa Act 108 of 1996 determine that:

“When the organ of state in the national, provincial or local sphere of

government, or any other institution identified in the national legislation,

contracts for goods and services, it must do so in accordance with a

system which is fair, equitable, transparent, competitive and cost-

effective”

Section 217(3) of the constitution mandates the national government to

prescribe a framework providing for preferential procurement to

address the social and economic imbalances and discriminating laws

of the past.

The Municipal Finance Management Act, (MFMA) 2003 (Act 56 of 2003),

section 2(a), (b) and (f) which was promulgated to regulate and secure sound

municipal financial management, is applicable to all municipalities and

municipal entities by establishing norms and standards. The act ensures the

following standards:

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• Transparency, accountability and appropriate lines of

responsibility in the financial affairs of municipalities and

municipal entities.

• Appropriate systems are established to manage

revenues, expenditures, assets and liabilities, supply

chain management and integrated budget and planning

processes.

The promulgation of the Preferential Procurement Policy Framework Act, (Act

5 of 2000) was followed by the establishment of the Supply Chain

Management Regulations in the Government Gazette no 27636 Vol. 479

dated 30 May 2005, which provides the framework for the establishment and

implementation of the Supply Chain Management Policy by the municipality.

The Preferential Procurement Policy Framework Act, 2000 (Act 5 of 2000),

and its accompanying regulations, were promulgated to prescribe a

framework for the implementation of the preferential procurement system. The

preferential system includes, among other considerations, the 80/20 and the

90/10 preference point system applicable in the evaluation of bids and

tenders, procurement methods and the establishment of committee systems

for competitive bids.

2.3 Procurement Defined Bates et al, (2006: 200) define procurement as the activity of finding and

buying goods that businesses need in order to operate. Components, raw

materials, and supplies is known are examples and this is known as

procurement or purchasing. The words buying, purchasing and procurement

all refer to transactions, which means exchanging one thing of value, usually

money, for another thing of value.

Bolton, P; (2007: 1 - 3), describes procurement as the function of purchasing

goods and services from an outside body as contained in the heading of

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Section 217 of the constitution should be given a wide interpretation.

Procurement in the South African context should be understood as referring to

instances where government acquires goods and services and when it sells or

lets assets.

Therefore, procurement is a process of deciding on what is to be bought,

objectives that are to be fulfilled, the method of acquisition and exchange

value, and choosing the best or most appropriate service provider with

regards to value for money. Within the South African government context,

procurement is intended to facilitate the socio-economic upliftment of all those

who fall within the category of historically disadvantaged demographics of the

country.

2.4 Implementation of the Preferential Policy Framework Act, (Act 5 of 2000) by Municipalities The supply chain management regulations which became effective on 1 July

2005 require the Municipal Council to approve a transparent policy that will

regulate municipal procurement systems. Municipalities were categorised as

high, medium and low capacity regarding their capabilities to recruit or use

existing human resources to implement the policy and its ability to generate

revenue.

The categories of municipalities’ involvement were first high capacity

municipalities, followed by those referred to as medium capacity, effective on

the 1 January 2006, and lastly the low capacity municipalities on 1 July 2006.

The aim of standardising the regulations was to bring about uniformity in

procurement between the 3 levels of government. These regulations were

developed to put in place the administrative and financial accountability under

the supervision of the accounting officers.

The accounting officers or municipal managers are responsible for ensuring

that there are maximum controls in place to prevent mischievous actions,

fraud, favouritism, corruption, and unfair practices and ultimately be in full

control of the procurement process.

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Craythorne (297: 2003) states that the constitutional provision contains two

levels. At the first level, when organs of state, such as the council award

contracts, they must do so in accordance with a system devised by them, but

subject to financial management legislation, which will be the MFMA. The

system must be fair to council and other potential contractors; must be

equitable (impartial in its substance); transparent (open and not secret);

competitive (so that tax payers get the best deal for money); and cost

effective (public goods are not beyond the reach of the public).

At the second level the principle is that those persons who, on the grounds of

race or colour, were excluded from being suppliers of goods and services, can

be given preference in the award of contracts and be given protection.

2.4.1 Procurement Reform The Green Paper on Public Procurement recognises that certain institutional

reforms need to take place in order to promote an efficient and effective

procurement system and to achieve value for money and world class

procurement systems

(http://www.info.gov.za/greenpapers/1997/publicproc.htm).

The reason for the institutional reforms is to establish and develop an

environment which that will accommodate the vision and the objectives of the

legislation. There are a number of suggestions on key elements, regarded as

focus areas, of the reforms in the application of the procurement system.

2.4.1.1 Objectives of a Reformed Procurement System Socio-economic objectives, supported by good governance, have been

identified by government as indications for bench-making the success of the

procurement reforms.

The Green Paper on the Public Procurement Reform in South Africa states

that the socio-economic objectives involve access to tendering information;

simplification of tender documents; drafting of an affirmative small-medium-

and micro-enterprise participation programme and affirming marginalised

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sectors of the society in the construction projects with special focus on the

development of human resources.

Good governance includes aspects such as value for money, a financial

management control system, meeting tax and service charge obligations and

adhering to prescribed labour practices

(http://www.info.gov.za/greenpapers/1997/publicproc.htm).

In the past, public tendering favoured the well-established companies and it

was difficult to enter the market. Now there is a constitutional mandate that

the system must be fair, competitive, transparent and cost-effective, so that

there is an enabling environment for the participation of the previously

disadvantaged people of the country.

Secondly, structures must be in place to regulate and maintain good

governance with special focus on financial management. There should be

organisational restructuring plans to provide guidance for the establishment of

the Supply Chain Management Unit. This unit will ensure that the process of

procurement is accountable, fair, equitable, transparent and a competitive

environment is created.

The implementation process by municipalities must be done, monitored and

evaluated by people who have the required expertise. Regulation 2.6.1 states

that the National Treasury will provide support by facilitating the development

of appropriate training material in conjunction with the South African

Management Development Institute, and the Institute for Public Finance and

Auditing (IPFA).

The implementation of the Preferential Procurement Policy Guidelines as a

product of the Preferential Procurement Policy Framework requires that the

Accounting Officer, and the Municipal Manager, in the case of the municipal

entity, establish the Bid Specification, Evaluation and Adjudication

Committees. The functions of the committee range from the evaluation of

quotations or tenders received, to adjudication of evaluated tenders.

20

Affirmative Procurement requires that the implementation of the procurement

system should have clearly defined parameters targeting small-medium-and

micro-enterprises with specific focus on businesses owned and managed by

previously disadvantaged individuals. As municipalities should develop and

implement their own procurement policies, as stated in the constitution

Section 217, the Affirmative Procurement Reforms should be incorporated

into the policy.

The inclusion of the consideration of the previously disadvantaged people in

the policy will force the Supply Chain Management personnel to follow the

requirements of the policy. The existence of the policy that seeks to engage

small-medium-and-micro enterprises will also serve as a tool to protect the

interests of the government and hold the supply chain management unit,

together with the municipality, accountable for their actions.

Failure to implement and follow the policy is complete disregard and

contravention of the law at the expense of individuals who were not protected

by the laws of the previous regime. The Affirmative Procurement Reform and

the Preferential Procurement Regulations are the product of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000) which prescribes a

particular process and steps that have to be followed when procurement is

allocated to business people.

It can be deduced that, to achieve the objectives stated above, there should

be transformation of the procurement process and practices within the Supply

Chain Management and also bring about significant improvements to financial

management. The municipal manager has the duty of instituting and

maintaining the supply management system, which is transparent, efficient,

equitable, competitive and accessible to HDI’s. This objective can be best

achieved if there is ethical consideration, accompanied by the highest

possible ethical standards, subject to structured monitoring and reporting

mechanisms.

21

Part 4 of the Reconstruction and Development Programme states that the

South African economy is in a deep-seated structural crisis and as such

requires fundamental reconstruction. For decades forces within the white

minority have used their exclusive access to political and economic power to

promote their own sectional interests………..A particular weakness of the

economy, aggravated by racist and sexist policies, is the inability to maintain a

dynamic small-scale and micro-enterprise sector. Smaller firms, especially if

owned by black people, can rarely develop productive linkages with the large-

scale sector. Most people in the informal sector lack productive and

managerial skills and access to business sites, capital and markets

(http://www.anc.org.za/rdp/rdp4.html).

It is against this background and the adoption of the Reconstruction and

Development Programme that the concept of Affirmative Procurement came

into being. The distribution of business opportunities must then be used by the

new South African government as an instrument for the creation of wealth and

reduce disparities in business ownership. It can thus be deduced that the

main objective of affirming small-medium-and micro-enterprises participation

is to provide equal access to public procurement and contracting

opportunities.

Furthermore, whilst the government is proposing the process of involving

black-owned businesses into main stream economy, there is a dire need to

expose these targeted demographics into skills development initiatives

necessary in enhancing quality business management. The process should

provide mechanisms for the participation of targeted segments of the South

African population and is engaged in providing goods and services.

• The Reconstruction and Development Programme Chapter 4 (4.4.7.3)

cite constraints which are facing the small-medium-and micro-

enterprises being:

• Access to markets

• Credits

22

• Skills

• Supportive institutional arrangements

The government must ensure that an environment is created whereby the

small businessman is able to access funds to start a business. He or she

should also have access to merchandise, the market and to sell products.

The previously marginalised groups are faced with skills shortage reality due

to various reasons. The quality of education that has been applied by the

apartheid regime was never intended to empower people to have life skills

and be responsible for their destiny.

There were a number of by-laws and legislation that prevented black people

from participating actively in the economy. The Group Areas Act of 1950

separated people in terms of geographic areas for each race and the Bantu

Education Act of 1953 enforced racial segregation of schools, and imposed an

inferior system and training on black people.

The majority of the blacks were never hands on in the business environment.

They were mere labourers, taking instructions and implementing what they

had been told by their masters. The government has realised that previously

marginalised people lack expertise and the necessary skills which are crucial

when one intends to establish an enterprise.

The institutional arrangements have been identified as another area of

importance. In order for the small-medium-and micro-enterprises to take off,

there should be institutions which are dedicated to providing guidelines to

those who wish to start businesses. Support in terms of standard business

management skills such as finance management, marketing, planning and

operating aspects are very important for the success of any business. South

African governments’ willingness to support this very important is visible.

23

There are government institutions like the Small Business Development

Agency (SEDA), established by the Department of Trade and Industry, to

support small business enterprise. According to Bates et al (2006: 87), the

purpose of SEDA is to ensure a co-ordinated approach to design and

implement development programmes and create a service delivery network

for small businesses throughout South Africa.

Bates (2006: 80-81) argues that it has recently been realised that the

contribution of small businesses to the economic growth and development is

on average higher than that of big business. The sum total of jobs created

through small business or small organisations is much higher than that of big

businesses or organisations combined. Many countries’ economies are now

doing all they can to enable small businesses or organisations to thrive. This

is because governments have realised the enormous contributions that small

business organisations make to the economy.

Supportive institutional arrangements have a bearing on the public service

where any type of procurement is taking place. Public institutions must

establish Supply Chain Management Units to have help desks to provide

assistance and support to service providers. The government passes

legislation and creates policies, guidelines and frameworks that set the limits

within which business can take place.

If the major constraints, according to the Restructuring and Development

Programme as stated above, are encouraged and dealt with properly, small

businesses have the potential to bring about economic development, job

creation and social stability within the area. It is also very clear that the South

African government has realised the potential small business people have

towards the building of the economy of this country. The derivatives of the

Constitution of the Republic of South Africa, the Preferential Procurement

Policy Framework Act, (Act 5 of 2000), Preferential Procurement Regulations

and the Affirmative Procurement Regulations demonstrate the government’s

intention to develop the economy through the consideration of small-medium-

and micro-enterprises when awarding business contracts.

24

The Green Paper on Public Sector Procurement Reforms states, that in order

to achieve the ideals of good governance and to address the changed

environment, some fundamental institutional reform will have to be

implemented. The reform could promote effective and efficient procurement

systems and practices which enable government to deliver the required

quality and quantity of service.

According to Shah (2005: 40-1) governance is a multifaceted concept

encompassing all aspects of the exercise of authority through formal and

informal institutions in the management of the resource endowment of a state.

The quality of governance is thus determined by the impact of this exercise of

power on the quality of life enjoyed by the citizens.

The establishment of uniformity in procedures, policies, documentation and

contract options and implementation of sound systems of control and

accountability need to form the cornerstone of institutional reform.

This very broad objective can be summarised as putting in place an integrated

standard generic approach towards the acquisition systems. These systems

will direct government resources towards service delivery in the most

economical and transparent way without losing sight of the targeted business

communities. The standardised procurement process will also assist in

drawing up conclusions when competitive procurement is carried out.

It will be equally difficult for government to keep a large number of labourers

due to the costs associated with employee benefits. However government

should create jobs and permanent employment. Most private companies

employ people only on a contractual basis and are normally paid on an hourly

basis.

Wilson and Hinton (1993: 93) argue that private contractors may achieve

savings by offering lower wages, worse working conditions and cutting jobs.

Public authorities begin the tendering process at a disadvantage given the

25

labour-intensive nature of many services and their commitment to nationally-

determined wage levels.

In other words saving to the local tax-payers for instance, may be at the

expense of the poorly paid members of the society. This could be the same

situation facing government’s labour intensive programmes headed by private

companies. Professional bodies for specialised individuals regulate their rates

per hour so far the wages paid out by to labourers employed by these

professional are not regulated and monitored to guard against labourer

exploitation.

2.4.2 Policy Development and Implementation The implementation of the procurement process by municipalities is the

profound commitment to legislative requirements. This has to be achieved

through the establishment of the Supply Chain Management Unit.

The duty of this unit, as a municipal structure, is to manage the working

capital invested in the procurement of goods and services with the objective of

maximising the economic return from such spending. If the municipality has

established this unit, it is complying and observing all pertinent legislation.

This includes the Preferential Procurement Policy Framework Act, (Act 5 of

2000) and the Municipal Finance Management Act (MFMA) including the

regulations regarding the prescribed framework for the supply chain

management.

When officials dealing with the supply chain management processes have

been given training regarding the implementation process, they are entrusted

with the duty of ensuring that the procurement policy is followed. They have to

analyse all documentation required and provide guidelines and technical

assistance to the officials.

The Municipality must establish a Supply Chain Establishment Policy

Committee which will develop a document on how the Municipality intends to

conduct its procurement. This should be in line with the Preferential

26

Procurement Policy Framework Act, (Act 5 of 2000) and the Municipal

Procurement Regulations forming the basis for the formation of the policy.

The committee should pay attention to detail to eliminate any ambiguity whilst

incorporating the five pillars of procurement: value for money, effective

competition, fair procedures, transparency and control and equity.

After establishment Council should approve and adopt the policy. At the

adoption stage there will be delegation consideration, establishment and

placement of the of the Supply Chain Management Unit within the

municipality, threshold values, bid committee structures and bid documents

including the General Conditions of Contract (GCC).

After the policy has been put in place practitioners should be provided with the

necessary training including data-base management for the registration of

various service providers and end-users of the policy should also be taken on

board.

2.4.3 Procurement Methods Bolton (2007: 133) mentions various methods of a procurement process that

can be used for various reasons and categories. Procurement differs based

on the amount which has to be spent or be available as budget, quality and

quantity. All these categories of procurement are subject to fairness, equity,

competition, transparent, accountability and value for money.

2.4.3.1 Uniformity in Tender Procedures Bolton (2007:144 - 5) states that the National Treasury requires that

accounting officers base their bid invitations on the General Conditions of

Contract (GCC) issued by the National Treasury. All bids and contracts should

be subject to the GCC and the standard wording should not be amended. If

the guidelines are applied, genuine competition should be ensured, because

they emphasise the importance of uniformity in bid documentation. Uniformity

in procurement documentation ensures improved understanding by emerging

contractors in particular and so ensures the maximum degree of competition

and cost effectiveness both in financial and human resource terms.

27

According to the Green Paper on Public Sector Procurement Reform in South

Africa, uniformity in tender and contract documentation will promote effective

participation by emerging enterprises. This understanding and interpretation

of the document process will thus be enhanced and the process simplified.

This initiative on the side of the government shows their intention to broaden

the scope of participation by targeted segments of business owners. The use

of the standardised procurement documents and the repeatable exposure to

these contract documents, even the least literate segments of our community,

will, over time, learn and manage the complex task of completing a contract

and tender documents.

The purpose of the help desk is to ensure the equitable treatment of

prospective bidders and service providers who do not have the educational

skills to complete the required documentation in response to notices calling

for quotations or tenders. The information regarding this type of assistance

can also be indicated in the relevant notices.

2.4.3.2 Management of Procurement Requirements Chapter 2 of the Municipal Supply Chain Management Regulations states that

the Supply Chain Management Policy must provide an effective system of

demand management in order to ensure that the resources required to

support the strategic and operational commitments of the municipality are

delivered at the right time, at the right place, at the right price and that the

quality and quantity satisfy the needs of the municipality.

This statement talks to the circumstances and reasons why any type of

procurement may be required. It starts with the needs analysis per strategic

plans, resource requirements, sourcing options, scheduling, for whom and

when. The results from this analysis lead to the acquisition process and

management, which forms the gist of the procurement policy.

The Acquisition Process

28

Chapter 2 of the Municipal Supply Chain Management Regulations,

Government Gazette No. 27636 states that the Supply Chain Management

Policy must make provision for various methods of acquisition. Regulation 12

prescribes four types of procurement:

(a) Petty cash purchases not exceeding R 2000

(b) Written or verbal quotations. The threshold is between R 2 001 and R 10

000

(c) Formal written price quotations for procurements of a transaction value

over R 10 000 up to R 200 000 (VAT included) and

(d) A competitive bidding process for procurement above the transaction

value of R 200 001 (VAT included) and R 500 000 and the long term

contracts in excess of R 500 000.

2.4.3.3 Petty Cash Purchases Depending on the strategic demands of the municipality, the categories listed

above will be applied for acquisition of specific objectives. The petty cash not

exceeding R 2 000 should be kept by an official who has been delegated the

duty by the accounting officer of the municipality.

The cash is used for the day-to-day procurement of relatively cheap items for

activities of the office. When the cash is used up it has to be reconciled and

reimbursed as soon as possible. The accounting officer has to ensure that

there are controls in place to regulate petty cash purchases, otherwise could

be abused. It is still within the ambit of the accounting officer or the delegated

manager to have spot checks of the petty cash. This is also a very important

step towards ensuring that the cash is used and replenished appropriately.

Regulation 15 of the Municipal Supply Chain Management states that a

supply chain management policy must stipulate conditions for the

procurement of goods by means of petty cash purchases; referred to in

regulation 12 (1) (a) which includes:

• Determining terms under which a manager may delegate responsibility

for petty cash to an official reporting to the manager

29

• Limiting the number of petty cash purchases or the maximum amount

per manager per determined period

• The need for monthly reconciliation accompanied by the appropriate

documents.

Bolton (2007: 149) also argues that even though the value of these purchases

are low, compared to contracts that are subject to competitive bidding

procedures, it is important for proper safeguards to be in place to ensure that

public money is spent wisely and in the most efficient manner. Sufficient

safeguards should be in place to guard against corrupt practices, which, in

turn ensure compliance with the principle of cost-effectiveness.

2.4.3.4 Written or Verbal Quotations Regulation 16 of the municipal supply management policy must stipulate the

conditions for the procurement of goods and services through written or verbal

quotations, which must include conditions stating-

(a) That quotations must be obtained from at least three different

providers, preferably from, but not limited to, providers whose

names appear on the list of the accredited prospective providers of

the municipality. If quotations are obtained from providers who are

not listed, such providers must meet the listing criteria in the supply

chain management policy required by regulation 14 (1) (b) and (c).

(b) Service providers be requested to submit quotations in writing.

(c) If it is not possible to obtain three quotations, the reasons must be

recorded and reported quarterly to the accounting officer or another

official designated by the accounting officer.

(d) If the quotation is submitted verbally, the selected service provider

may place the order only against written confirmation.

This category of procurement requires that, when a demand for a particular

service has been identified, the supply chain management unit must call for

written estimates from prospective service providers. Written or verbal

estimates should be solicited from at least three service providers who are

30

listed in the supplier database of the municipality. If, for some reason, quotes

cannot be received from the database suppliers, they can be solicited from

those not listed in the database. Approaching outside suppliers could be a

deviation from the required process, which must be incorporated when

reporting time arrives.

The estimates in this category must exceed R 2 000 but be below R 10 000.

Regulation 16 © is provides a condition and a control mechanism to ensure

that, even if the three estimates for some reason cannot be secured, the

reasons to this effect must be in writing and form part of the report to be

submitted to the accounting officer when the time comes.

The accounting officer must ensure that the database of accredited

prospective service providers and contractors is established and updated by

the supply chain management unit or delegated official. The updating of the

database is normally done through an advertisement in the local newspaper

and the website of the municipality calling for various categories of service

providers.

According to Regulation 14 (2) of the Municipal Supply Chain Management

prospective service providers must be allowed to submit applications for

listing at any time. The contents of these applications are used to ensure and

promote competition amongst potential suppliers. Coupled with this database

listing, the activity of supplier rotation is normally kept for consultants. The

municipality approaches the supplier to submit a quote, proposal or offer on a

rotating system to be appointed to provide the service.

This reporting requirement sends a clear message that controls are in place

and this control measure bears a potential to reduce unethical and

mischievous behaviours by some corrupt elements within the municipality. If

there were no such control, it would mean that, at any given time,

procurement officers or those delegated the function, would by-pass this

requisite and simply ignore their Constitutional mandate as stipulated in

31

Section 217 (b) of ensuring that prospective service providers are afforded

equal opportunity to compete for the business contract.

2.4.3.5 Formal Written Price Quotations Formal price quotations is another method of procurement for items in excess

of R 30 000 but not exceeding R 200 000

The accounting officer must establish conditions for the procurement of goods

and services through formal written price quotation. Procedures according to

Regulation 18 of the Municipal Supply Chain Management Policy lay down

the following process:

(a) All requirements, in excess of R 30 000, must be advertised for at

least seven days on the municipal website as well as on the

municipal notice board.

(b) When using the list of accredited prospective providers the

accounting officer must promote ongoing competition amongst the

suppliers, including by inviting providers to submit quotations on a

rotation basis.

(c) The accounting officer must take all reasonable steps to ensure that

the procurement of goods and services, through written or verbal

quotations or formal written quotations is, not abused.

(d) The accounting officer should keep a record of all verbal and written

quotations received and accepted by a delegated official.

(e) A proper record keeping system must be in place

The above conditions are applicable to all procurement, be it general goods

and services or consulting and engineering contracts. The selection of

suppliers based on rotation or called on expression of offer will not exceed R

200 000. The municipality must regularly evaluate the deals approved to

determine adherence to the empowerment goals, allocation and giving

preference to the previously disadvantaged segments of the community. This

information has to be made public and reported to municipal officials,

councillors and managers as determined in the municipal procurement policy.

32

2.4.3.6 The Preferential Point System The 80/20 preference point system formula must be used to calculate the

points for the price in respect of tenders or procurement with a Rand value

equal to or above R 30 000 and up to R 500 000. A maximum of 20 points

may be awarded to a tenderer for being a Historically Disadvantaged

Individual or for sub-contracting with a Historically Disadvantaged Individual or

for achieving any of the specified goals stipulated in Regulation 17(3) of the

Preferential Procurement Regulations of 2001. The 90/10 formula must be used to calculate the points for price in respect of

tenders or procurement with a Rand value above R 500 000. A maximum of

10 points may be awarded to a tenderer for being a Historically

Disadvantaged Individual, for subcontracting with a Historically

Disadvantaged Individual and / or for achieving any of the specified goals

stipulated in Regulation 17(3) of the Preferential Procurement Regulations of

2001. www.bee.sabinet.co.za

2.4.3.7 Competitive Bidding Process Regulation 19 of the Municipal Supply Chain Management Policy states that

when the Municipality is procuring goods and services in excess of R 200

000, such procurement must be carried out through competitive bidding,

except when procuring goods and services contemplated in section 110 (2) of

the Municipal Finance Management Act 56 of 2003. Furthermore, the

regulations state clearly that bids in excess of R 200 000 must not be

deliberately split to avoid the competitive process. This action is forbidden

simply because it defeats the whole intention of competitive bidding

objectives.

Where appropriate and cost-effective, the unbundling of large projects or

contracts, in accordance with the objectives of the Preferential Procurement

Policy Framework Act, (Act 5 or 2000) may be implemented. This means that

the municipality can decide to award contracts in whole or in parts.

33

It is the responsibility of the accounting officer to establish and enforce

procedures for competitive bidding processes for each of these stages:

• The compilation of the bidding documents

• The public invitation of bids

• The handling of bids submitted in response to the public invitation

• The evaluation of the bids and awarding

• Contract administration and information management

2.4.3.8 Handling of Bids Regulation 23 of the Supply Chain Management requires that a procedure be

determined for the handling, opening and recording of bids. It is stipulated that

bids should be opened in public soon after the closing date and time has

expired. The names of the bidders and their price should be read out in public.

At this time the information is recorded and later forwarded to the accounting

officer.

2.4.4 Committee System for Competitive Bids In terms of Regulation 26 (1) of the Municipal Supply Management Policy the

policy must provide for a committee system for competitive bids consisting of

a bid specifications committee, a bid evaluation committee and bid

adjudication committee. Also the supply chain management states that the

accounting officer must appoint the members of each committee. The

committee system must be consistent with regulations 27, 28 and 29 and

other applicable legislative framework.

2.4.5 Duties of the Committees 2.4.5.1 Bid Specifications Committee

This committee must comprise of one or two officials – preferably a

manager responsible for the supply chain management unit. Their

focus is the compilation of the technical specifications, bid special

conditions of the contract, terms of reference and to determine goals, in

terms of the Preferential Procurement Policy Framework Act, (Act 5 of

2000), for each procurement of goods and services.

34

The specifications decided upon by the committee must be approved by the

accounting officer or delegated official prior to the publication of the bid and

should not promote any trade mark, name or patent design. According to

Bolton (2007: 153) specifications may not create trade barriers in contract

requirements in the form of specifications, plans, drawings, testing and test

methods. As noted above the drafting of specifications in an unbiased manner

boosts competition and prevents the advertising of taylor-made contracts

which defeat competition thus ensuring compliance with the principle of

competitiveness.

The specifications should result in appropriate quality being procured in line

with the user needs and should not be used to exclude the previously

disadvantaged segments of communities. The project manager or the official

in need of this service being procured, joins the committee for discussions

around the development of the bid specifications. Of great importance to this

committee is the discussion of the terms of reference and the scope of works

required for the implementation of the project.

Lovell, R (1994: 221) states that specification will define in clear and precise

terms:

• The scope of work to be undertaken, output required in amount and in

quantity, standards to be met and when and how the work will be

measured

• Responsibilities of the contractor and the department or agency and

the interfaces between them

• Identification of any key milestone events and approvals required

before the next event commences

• Commencement of the contract; completion dates for work to be done

• Contractors’ continuing responsibilities on completion of the work.

35

Furthermore he states that the specification will include quality standards and

monitoring arrangements, for example, random checks, regular inspection,

customer feedback … how the contractor will handle complaints of poor

service.

It can be deduced that the writing of specifications is a very important process

that requires proper controls to be enforced by all parties. Lovell’s approach

also highlights the importance of communication between the contractors, the

municipality and customer feed-back on the quality of service the company is

rendering. Therefore frequent site visits, regular progress inspection and

monitoring is critical to establish, sooner than later, any poor workmanship

and dissatisfaction on the standard and quality of service.

If the official cannot make it to the committee meeting the supply chain

manager may be called to represent the officer in the drawing up of the

specifications. At this meeting the discussions will indicate how the

preferential points to the previously disadvantaged individuals will be

allocated.

It is also important for the bid specifications committee to familiarise itself with

the standard advertisement of the bid to satisfy certain requirements prior to

publication. The bid advertisement must state the closing date, where bid

documents can be collected, and at what cost, the validity period the bid must

hold, information about site visits where applicable. The advertisement should

have clear directions, evaluation and adjudication criteria and where to

deposit the sealed envelopes with bid documents. The box where bids can be

deposited must be in a secured area, lockable and visible to bidders at all

times.

The points to be considered and decided upon by the committee should be in

line with the supply chain policy of the Municipality and also per municipal

procurement guidelines. It is critical that the committee does not deviate from

the gazetted municipal procurement regulations and the procurement policy of

36

the municipality to prevent and alleviate any queries that may emanate from

disgruntled service providers.

2.4.5.2 Bid Evaluation Committee

This committee must be composed of officials from departments

requiring goods or services and at least one supply chain management

practitioner. The formation of the committee also depends on what the

accounting officer may decide to appoint to serve and for how long.

The committee functions include the following:

• Must evaluate bids in accordance with the specification for the specific

procurement.

• Evaluate each bidder’s ability to execute the contract

• Check in respect of the preferred bidder whether municipal rates and

taxes and municipal service charges are not in arrears.

• Submit to the adjudication committee a report and recommendations

regarding the award of the bid or any other related manner

This committee therefore receives the bids submitted by service providers and

evaluates the documents in line with the committees’ specific functions. Their

evaluation should be based on and be in line with the invitation of bids on and

be in line criteria for evaluation cannot be drawn contrary to the advert.

Therefore the process of considering bids, and the critical evaluation thereof,

must be determined by the contents of the bid advertisement.

The information from potential service providers is sought to elucidate

competency, experience in implementing similar projects and the capacity

available to accept the contract. The quality of management and the

workforce, records of past achievements and financial status or the source for

funding should be evaluated.

After all necessary evaluation has been finalised and recorded by the bid

evaluation committee the recommendations agreed upon will be forwarded to

the Bid Adjudication Committee.

37

2.4.5.3 Bid Adjudication Committee

This committee is the body making final decisions on whether to award

the tender or not, and on whether to withdraw the tender. According to

Bolton (2007: 213) bidders prepare their tenders based on the

specifications laid down in a call for bidders. As a standard practice

therefore, organs of the state should not be allowed to make changes

to bid specifications after a call for tenders has been advertised.

It is in the interest of transparency, fairness and competitiveness for

organs of the state to abide by the tender specifications initially

provided. Whatever they decide upon, it must be informed by the

circumstances relating to the handling of the tendering process. The

committee is made up mostly of senior managers, secretariat, the

supply chain manager and any other person as appointed by the

accounting officer.

The committee evaluates the recommendations made by the bid

evaluation committee together with the supply chain manager on the

bids received. They consider and critically evaluate the

recommendations and finalise the process by making final awarding

and any suggestions to the accounting officer.

According to Lovell (1994: 224), the evaluation of the bids process

includes the handing of information to bidders when requested as to

the reasons for the failure of the bid. Such decisions and discussions

are on record to ensure accountability and transparency.

When this committee makes recommendations to award the bid, a

number of factors are taken into account, such as the evaluation of

ownership of the business; the Value Added Tax standing of the

company; sureties and guarantees; the capacity of the company to fully

execute the project; evidence to substantiate levels of experience,

expertise, skilled staff, equipment and plant; possible over-

38

commitment; past service and quality of work and, at times, the credit

worthiness and financial stability of the business.

This committee must be able to decide on the capability, technical and

financial assessment of the bidders under consideration. The financial

standing of the business may not be an issue because few small

business people manage to possess credible bank accounts. What is

important though is how the business will source funds to implement

the project. Most small business enterprise owners will approach

financial institutions and development banks to stand as sureties or get

cession agreements signed by the parties.

2.4.6 Sub-contracting and Joint Ventures

Bolton (2000:7) defines a joint venture as an economic marriage, which

like marriage itself, offers great opportunities to exploit and share

resources, information, skills and financial strength, mutual trust and

confidentiality.

It has been identified that most previously disadvantaged individuals do

have much expertise and relevant skills to deal with the challenges of a

big contract. Provision has been made that sub-contracting be allowed

when the emerging company has been awarded a tender. However the

sublet work should not exceed 25% of the total contract award.

The Municipality should only accept Joint Venture Agreements which

are formed as a new legal entity and where an acceptable and legal

agreement is submitted to the municipality. Any payments due to the

joint venture will be made to the joint venture bank account.

According to Balshaw and Goldberg (2005: 183), there are

disadvantages and advantages to this arrangement and they mention

the following:

39

• It allows the company to build strength in more business areas than it

is capable of achieving alone.

• It provides access to capital at a relatively low cost because partners

see synergy to be gained, including leveraging partners, differing

capabilities, market knowledge, management skills and capital to the

benefit of both parties.

• Disadvantages

• It requires planning, including a realistic feasibility study, an analysis of

risk, budgeting, due diligence and agreements to split rewards based

on risk and performance

• A pitfall could be a breakdown of trust or communication

• Over possessiveness of one partner and vague objectives and goals

The formation of joint ventures and sub-contracting is a form of involving and

exposing emerging companies to big companies through this process. At face

value it is a superb arrangement, but can just as well be a can of worms if no

monitoring is taking place. It can expose the other member to abuse and

exploitation. Hence the municipality should have a system of ensuring that the

engagement by parties if fruitful.

2.5 Monitoring and Evaluation The Green Paper on Public Sector Procurement Reform in South Africa

(1997:23) states the Accounting Officers should be fully accountable for any

expenditures regarding procurement within their line of responsibility.

2.5.1 Duties of the Accounting Officer

The Accounting Officer is fully liable for the implementation of the

procurement policy. He or she should take reasonable steps to ensure

that procurement agreements and contracts rules are enforced and

that there is enough capacity to deal with the foregoing roles and

responsibilities.

40

Regulation 42 of the Municipal Procurement Policy refers to monitoring

activity as performance management. The regulations state that the

supply chain management policy must provide for an effective internal

monitoring system in order to determine, on the basis of retrospective

analysis, whether the authorised supply chain management processes

are being followed and whether the desired objectives are being

achieved.

Lovell (1994: 222-3) alludes to the importance of declarations by those

involved in the bidding process. In his book he makes a very important point

that seems to be lacking on the part of the Municipal Procurement Policy

Regulations that, “Bidders must sign confidentiality agreement to confirm that

there is no collusion with other contractors in bidding for the work and there

has been no canvassing or soliciting of departmental staff.”

In the interest of good governance and adherence to ethical business

practices, it really does make sense that all parties to the process should sign

and make declarations on their interests. The Municipal Procurement Policy

Regulations 46 (e and f) does not specify any visible action to be taken on the

side of the service provider.

In order to combat corruption all parties should make declare clearly that they

understand and will not conduct any unethical actions which may be regarded

as corrupt whilst they are doing business with the Municipality. In the event

that any misconduct is detected, then government can build a strong fraud

case against the perpetrators because they have betrayed the government

and have violated their oaths.

The Accounting Officer must ensure that stakeholders are informed of these

processes through workshops and information sessions prior to the opening

of tenders and /or during the briefing sessions. This action is very important to

the National Treasury which is the office responsible for ensuring that reports

are received from the municipalities.

41

2.5.2 Monitoring Organisations According to Bolton (2007: 312-3) there are institutions that have played a big

role in enforcing compliance with the procurement rules. The institutions are

the Public Protector, the Office of the Auditor General and the National

Prosecuting Authority. The Green Paper on Public Sector Procurement

Reform proposed the establishment of a Procurement Compliance Office

whose main function is to oversee the procurement system in order to ensure

that the procurement of goods, services and works is conducted in a fair,

equitable, transparent, competitive and cost-effective manner.

Bolton (2007:253) states that numerous arguments can be raised in favour of

using procurement as a policy tool. One such argument is that “where

properly employed, procurement may prove a useful and effective instrument.

…………Provided that the use of the procurement as a policy tool has

measurable targets; the processes used are verifiable, auditable and

transparent; and the use of procurement as a policy tool takes place within a

competitive environment, procurement can, to a large extent, contribute to the

development of growing business enterprises that are able to participate

equitably in the global economy. It is therefore appropriate for the use of

procurement as a policy tool to be regulated.

The procurement implementation system in South Africa is a new concept that

has been seen in recent years spearheaded by the National Treasury. The

process implementation, training requirements and monitoring is the

responsibility of the National Treasury. The big question though is whether

this office will be able to monitor and do justice in this very important function.

Accountability is one of the pillars of the affirmative procurement. Therefore

the government must establish avenues for individual complaints.

One of the requirements of reformed public procurement is the affirmation of

the small business owners. Points are allocated in this area at the tender

evaluation stage to ensure that previously disadvantaged individuals have

leverage. It is unfortunate that some mischievous big business owners are

targeting these people and luring them into doing business with them as

42

partners. They also take advantage of their lack of education by using the

identity documents of these helpless individuals to create so called Black

Business Empowerment opportunity and reap profits through fronting. This is

unfair practice that needs proper monitoring and control.

Gildenhuys and Knipe (2000: 71) argue that where the administrative state is

still weak, as in some newly independent countries in Africa in particular, this

situation has barely changed. There is a tendency in South Africa for more

and more public services to be contracted out to private organisations. Even

in more administratively sophisticated countries, it is still difficult to reduce

political spoils in contracting, to prevent excess profits, to ensure quality

performance and eliminate kickbacks, in other words, to eliminate corruption.

South Africa is one of those countries still trying to stabilise their newly

established democracy and therefore requires strong control backup

structures.

2.5.2.1 Auditor - General

The Office of the Auditor General plays an important role of ensuring that the

rights of tenderers in terms of fairness, equity, transparency, competitiveness

and cost-effectiveness are safeguarded and enforced. The Office of the

Auditor General is one of the bodies established by government. The role of

the Office of the Auditor - General is to audit and report to national

government on the public accounts including financial statements and

financial management. The Auditor - General must report on the source and

application of public funds in all levels of government.

On 9 November 2007 Business Report published an article that the

government intended to beef-up and fast-track the expenditure on small-

medium and micro-enterprises and the Auditor - General would be asked to

report on progress made by departments in procurement.

www.busreport.co.za/index.php

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2.5.2.2 Procurement Compliance Office

The Green Paper on Public Sector Procurement Reform in South Africa

proposed the establishment of a national Procurement Compliance Office to

manage the procurement reform, oversee the way in which the state does

business with the private sector and maintain the procurement system.

The duties of the Procurement Compliance Office involves formulation,

implementation and advice on policy according to the legal framework, carry

performance audit, issue instructions and investigate complaints from the

public regarding tendering procedures.

The National Treasury Office in the absence of the Procurement Compliance

Office is actually playing the role of the Procurement Compliance Office,

overseeing the procurement system in order to ensure that the procurement

of goods, services and works is conducted in a fair, equitable, transparent,

competitive and cost- effective manner in accordance with the prevailing

legislation and within the parameters of government policy.

2.5.2.3 Other Remedies

There are other remedies available to service providers who feel strongly that

they have been treated unfairly during the procurement process. There are

services of the Public Protector, the Ombudsman and the National

Prosecuting Authority (NPA) which investigate alleged criminal acts in the

application of the procurement system, and legislation like the Promotion of

Administrative Justice Act (PAJA). The aggrieved parties can forward their

complaints with reference to these institutions for action.

The other legislation pertinent to the appointment of contractors is the

Construction Industry Development Board Act 38 of 2000. The legislation

forces contractors to register, all parties do business according to the Code of

Conduct, promotion of contractor development and are categorised according

to the nature of work, value and distribution of projects.

44

According to Fourie and Opperman (2007: 266 – 67), the legislation provides

municipalities with considerable degree of protection as the risk of

inadvertently appointing an inexperienced, unsuitable or incompetent

contractor is considerable reduced.

Therefore, when contractors are appointed, adherence to the requirements of

this legislation will provide guidance to the bid committees when awarding the

contracts.

2.6 Challenges Facing Procurement Process Bolton (2007: 181) states that there are common strategies to defeat fairness

and transparency in government procurement procedures, which are the

following:

• Fictitious quotes or tenders – are generally used to corroborate an

actual quote or tender. A public official may agree with the contractor to

use fictitious quotes to convince the evaluation panel of the

reasonableness of his quote or tender to win the contract.

• Acceptance of bribes – taking bribes defeats the rationale behind fair

and transparent procurement process. Contractors are prevented from

competing for contracts on an equal footing.

• Unequal time in the submission of quotes and tenders – affording time

to certain contractors for the submission of quotes or tenders

constitutes unfair behaviour. The acceptance of late tenders may also

undermine fairness and transparency because it enables contractors to

alter their tenders to take account of tenders already submitted.

• Changes to tender specifications – tenders are prepared on the basis

of specification. An organ of state should not be allowed to make

changes after a call to tender has been advertised.

45

• Amendment and withdrawal of tenders – allowing tenders to amend or

withdraw their tenders after submission may lead to unfairness

• Negotiating and/or varying the terms of contracts – to amend or

withdraw their tenders after submission has the potential to defeat the

requirements of fairness and transparency.

• Other strategies – these include influencing the work of evaluators,

influencing the choice of procurement method, over-and under-

invoicing and the approval of inappropriate tenders.

The above listed strategies are acts against the fair presentation of the

Preferential Procurement Policy Framework and the Procurement Policy

Regulation. It is important to understand that it is very difficult or even

impossible for the prospective service providers to implement these corrupt

tendencies alone.

For them to succeed they need internal arrangements which is none other

than the public official, who in most cases, is very influential or in charge of

the procurement process with regards to larger costs of the contract. The

actions of collusion could exist between the prospective service provider and

the official or even the project manager who knows not only the specifications

of the contract, but also the budget available or allocated towards the project.

It is worthwhile to mention that the same could be happening with petty cash

related quotes where there is little or no policy monitoring at all. The maximum

petty cash amount stands at R 2 000 and there is no limit to the number of

reimbursements per month, or certain period, as long as there are cash slips

to support the purchase. It applies to the R 10 000 threshold normally

authorised by middle managers. Also at this level, restrictions, checks and

controls should be in place.

46

There is a tendency of calling for a quote today priced very close to R 10 000

which can be followed by another, called from the same service provider after

a day or two. The motivation for this act is unforeseen deviation, which has

now led to call for another quote from the same company. The other area of

exploitation by the corrupt role players is the process of soliciting bids from

one service provider due to a so-called emergency.

The other area open to corruption is the type of business where the service

provider is regarded as the sole provider of the required service and therefore

there is no competition. Training, advertising and media and information

technology services are some areas of closed competition.

Certain departments like Communications, Training and Information and

Technology departments within the Public Service and Municipalities can be

regarded as posing a high risk. The specifications committee may have

technical difficulty in developing the terms of reference, which is a threat

leading to vulnerability of the committee. By and large they will depend on the

information supplied by the project manager.

• Gildenhuys (2000: 74) proposes some ways of minimising possible

fraud, corruption, ineffectiveness and the poor quality in the delivery of

goods and services applying some of these methods:

• Investigate the unused capacity of the institution. Public authorities

should only contract for what they really need.

• Ascertain going market rates and fair estimations of probable costs

before signing contracts and also assist authorities to negotiate better

contract prices

• More economic contract management is obtained through

centralisation, elimination of subcontracting and re-negotiation.

47

• Non-negotiable ceilings should be set on costs and profit margins

should be fixed before hand. The agreed contract price should be final

and non-negotiable.

• Where it is possible to estimate costs, product performance, reliability,

quality and delivery dates, contractors should be awarded incentives

for superior performance according to a sliding scale bonus, and a

penalty if they fall below targets.

• The government should protect itself against the mistakes of its own

contracting officers and administration and exclude itself from business

law as interpreted by the courts.

• Public authorities could reserve all rights to new discoveries made

under their contracts (patent rights and copyright)

• Periodic scandals that erupt over contracts have encouraged public

authorities to intensify security procedures and fraud detection efforts.

Public service officials and service providers should remember that one of the

responsibilities of government is to protect public funds. The strategies

proposed by Gildenhuys can go a long way in providing more security around

the tax-payer’s money. It must take immediate action on culprits found to be

defrauding the state. The public wants to see swift and tough action being

taken against perpetrators, and decisive action on all such public officers

found to be defeating the intentions of this noble objective.

Perhaps it will assist the government to have a Procurement Implementation

Outcomes Measure that will indicate problem areas, identify the extent to

which service quality has made an impact to the targeted segments of the

business community as well as having the means of obtaining feedback from

citizens. According to the Green Paper on Preferential Procurement, the

48

performance related to the achievement of the targets per municipality must

be reported quarterly or at least once annually

Customer feedback or surveys can be useful in obtaining regular feedback on

government targets – giving priority to black-owned businesses The feedback

will help government track trends and also make assessment on the extent of

improvement subsequent to the implementation of the affirmative

procurement.

According to Shah (2005: 144) the implementation of a performance

measurement system has a number of advantages. It allows consumers and

providers to compare performance over time, strengthen accountability,

because consumers are in a better position to evaluate the service, enhance

transparency and reinforce managerial accountability.

It is therefore important that the impact on the improved standard of living of

previously disadvantaged individuals be measured, to determine whether the

implementation of the Preferential Procurement Policy Framework Act is really

making difference to the beneficiaries. Presently the emphasis is on municipal

implementation of the policy through procurement policy adoption,

establishment of the supply chain management unit, training and reporting to

Council, Provincial and National Treasury Offices.

There is no mention on how the report from the businesses which received

contracts will be reported. The reporting process is missing critical information

from those awarded business contracts. Perhaps the widespread problem of

fronting, bribery, corruption and tender flouting can be reduced through this

measure.

2.6.1 Corruption and collusive tendering According to Bolton (2007: 57), corruption in the government procurement

context can take a number of forms. Bidders may collude in the submission of

tenders, influencing the work evaluators, inciting breaks of confidentiality,

49

offering bribes, over-and under-invoicing, fronting and/or inaccurate

disclosures in the submission of tenders.

In the light of increased levels of corruption, it really makes sense to ensure

that all parties involved in the procurement process be forced to sign a

declaration attached to a quotation or a tender document prior to handing it

over to the procurement officer. This means that parties to procurement

should all make declarations. The procedure may be able to reduce

corruption.

It is perhaps time for the government to dedicate teams to each district to visit

these companies to make a proper evaluation on the outcomes of the

implementation of the legislation. Waiting for whistle blowers and blacklisting

may not provide enough protection to the vulnerable historically

disadvantaged individuals.

2.7 Conclusion The implementation of the Preferential Procurement Policy Framework Act

requires appropriate monitoring. It is not only about the policy implementation,

but the percentage of tax-payers money allocated to the procurement of

services in general across the country.

There are indeed some municipalities that through their proximity to better

conditions of living, find themselves unable to recruit capacity of high level of

personnel. People refuse to move from urban areas and work in rural areas.

Perhaps for the benefits of the poor constituencies proposing attractive salary

packages will entice people of high calibre to consider the offer of coming to

the smaller municipalities which are struggling to provide even basic services

to their communities.

In such cases the municipalities which have an interest in such people, should

be allowed to apply to National Government for the salary assistance for the

acquisition of these much needed skills. The National Government should

50

confirm its willingness to pay such salaries to those people for the benefits of

its citizens and the fulfilment of its constitutional mandate.

The National Government is accountable to the citizens of the country, rather

than the provincial level of government. If this is the case it should consult

with municipalities, proving to be excellent in service delivery assist the ailing

smaller municipalities. One has to bear in mind that people on the ground are

eagerly awaiting basic services from the government and just cannot

understand why their areas cannot be provided if other municipalities are able

to deliver.

The government is calling for big, well-established businesses to form joint

ventures with emerging contractors. This approach is intended to help the less

skilled previously disadvantaged individuals with the opportunity of being

coached by big businesses so that they are able to implement projects and

sustain themselves. Few of such joint ventures are bearing fruit; most are just

providing an opportunity for fronting.

Black small business owners get into partnership or joint ventures with the

hope maturing in business, but the opposite is the true. Some blacks get into

business knowingly whilst others fall victims by virtue of being labourers in a

business owned by the white men. These fallacies are calling for stringent

measures and controls from the supply chain management unit and bid

committees to identify these culprits and bring them to book.

If the programme of skills transfer and capacity building of emerging

contractors is to bear fruit there should be clear exit strategies to ensure that

the emerging contractor will benefit from the joint ventures. Right now it is not

clear for how long the transfer of skills, coaching and mentoring should end

and the joint venture will cease to exist.

The awarding of business to emerging contractors has brought in a wave of

service providers bidding for business contracts who, in some cases have no

technical know-how of what is expected. Contracts have been awarded on the

51

basis of skills that the business owner will in a previously disadvantaged

person, hoping to recruit and appoint relevant people to implement the

project.

Such awarding forces them to fall victim to subcontracting and at times results

in the inability to deliver the service. The prize is none other than being

blacklisted for failure to deliver on the contract, although the action can be

regarded as unfair because sub-contracting was allowed by the bid evaluation

committee without any monitoring.

Just as it is in the interest of government to award contracts to emerging

contractors on the basis of information supplied in the tender document, it is

also dangerous. There is no guarantee that the project will be completed

according to specification. Some of the terms to relating to sub-contracting

and joint ventures are not so binding; emerging contractors are still falling

victims of circumstances.

There are well-developed countries which have technical skills in abundance

and are gathering dust. Perhaps calls should be made to these countries for

such individuals to assist and provide guidance for emerging business

owners.

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CHAPTER 3

RESEARCH METHODOLOGY 3.1 Introduction The process of conducting research involves a stage or a situation where

tests should be applied to determine what reasons for certain behaviours and

actions in various environments could be. The purpose and the objectives of

the study are fundamental in the application of various tests and a link has to

be created so that the researcher’s concerns can be answered at least

generalisation can be drawn from the responses.

The purpose of this chapter is to indicate the methodology which was applied

when the study was conducted. Questionnaires consisting of open and closed

ended questions were distributed to respondents and later collected.

Questions are based on the implementation of the Preferential Procurement

Framework Act, (Act 5 of 2000) and the Constitution of the Republic of South

Africa Act 108 of 1996. The design of the questions is such that it would

establish whether the municipalities have systems, policies and procedures as

well as structures to execute their Constitutional mandate. .

3.2 Research Question Is there a disregard for the implementation of the Preferential Procurement

Policy Framework Act, (Act 5 of 2000) in selected municipalities in the

Province of the Eastern Cape as a result of legislation not achieving its

objectives?

3.3 The Objectives of the Study The objective is to determine whether the promulgation of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000) is assisting in giving

priority to the Historically Disadvantaged Individuals (HDI’s) when contracts

for the procurement of goods and services are awarded by municipalities.

53

The study also evaluates whether there is any contravention of the legislation

during procurement processes, and whether the implementation is improving

the quality of life of South Africans. The objectives of this study are:

• To establish the level of awareness of the officials responsible for

procurement regarding the constitutional mandate of implementing the

Preferential Procurement Policy Framework Act, (Act 5 of 2000).

• To establish the institutional arrangement for the implementation of the

Preferential Procurement Policy Framework Act, (Act 5 of 2000) within

selected municipalities.

• To analyse and evaluate the processes of selecting and awarding

tenders with reference to selected cases within the selected

municipalities.

• To establish the extent to which the implementation of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000) contributes

towards the empowerment of the HDI’s within the selected

municipalities.

• To evaluate the effectiveness of the implementation of the Preferential

Procurement Policy Framework in terms of service delivery.

3.4 Research Design Babbie and Mouton (2006: 74), define research design as a plan or blueprint

of how one intends conducting the research. It focuses on the end product,

what kind of study is being planned, and what kinds of results are sought.

David and Sutton (2004: 134) state that the research design provides logical

framework upon which the research project is conducted and enables the

researcher to gather evidence that will enable the research question to be

addressed.

The plan of this study entailed the distribution of questionnaires to the supply

chain management units of the identified municipalities within the Province of

the Eastern Cape. The objective of the research questionnaires is to

54

determine whether the promulgation of the Preferential Procurement Policy

Framework Act, (Act 5 of 2000) is in line with the constitutional mandate.

3.5 Research Methodology Babbie and Mouton, (2006: 647) defines Research Methodology as methods,

techniques and procedures that are employed in the process of implementing

the research design or the research plan as well as the underlying principles

and assumptions that underlie the use.

It can be concluded that the method is a systematic procedure administered

to the respondents which will ensure that the data collected relate to the

motive behind the study.

Qualitative Research refers to the generic research approach to social

research according to which research takes as the departure point the

insider’s perspective on social action. The primary goal of this approach is

based on describing and understanding rather than explaining human

behaviour. (Babbie and Mouton, 270).

Alveeson and Deetz, (2000: 9) contends that qualitative method refers to an

array of interpretive techniques which seeks to describe, decode, translate

and come to terms with the meaning, and not the frequency of naturally

occurring phenomena.

The Qualitative Research method is one of the types of research processes

applied systematically to produce knowledge about the social world. The

researcher collected data to build theory on the research topic in order to

draw conclusions.

3.6 Target Population Newman (2006: 224) states that a population is an abstract idea of a large

pool of many cases from which a researcher draws a sample and from which

results are generalised.

55

Therefore the population in a study will refer to a list of elements selected

from various areas depending on what that researcher wishes to study. The

outcomes of the research will enable the researcher to analyse and draw

conclusions. With reference to this study, the population of the researcher

were municipal officials.

3.7 Sampling Method Following approval of request to undertake research by the Municipal

Manager, personnel in the supply chain management department and

municipal officials who take part in procurement and tender evaluation

committees were selected in order to participate in the in study.

3.8 Data-Collection Method Data was collected by means of questionnaires, which were distributed to

selected participants in the identified municipalities both in senior positions

and lower echelons of the municipality.

According to Newman (2006: 277) a good questionnaire forms an integrated

whole. Babbie (2006: 239) also shares this notion as he contends that the

format of a questionnaire is just as important as the nature and wording of the

questions asked. An improperly laid-out questionnaire can lead the

respondents to miss the questions, confuse them about the nature of the data

desired and even lead them to throw the questionnaire away.

Gliner and Morgan, (2000: 339), define a questionnaire as any group of

written questions to which participants are asked to respond in writing, often

by checking or circling responses. They can be mailed or administered

directly to the respondents.

Thus it is critical that the researcher prepare the questionnaire in a systematic

and simple manner, so that what transpires from the participants is in line with

the objectives of the study.

56

According to Collins and Hussey (2003: 178) the following rules should be

considered when a questionnaire is developed.

• Phrase each question so that only one meaning is possible

• Avoid vague, descriptive words such as large and small

• Avoid asking negative questions, as it may be easy to misinterpret

• Avoid leading or value-laden questions which imply what the required

answer might be

• Do not use jargon or specialist language

• Include questions that serve as crosschecks on the answers to other

questions

• Avoid questions that are nothing more than a memory test

3.9 Conclusion The qualitative research method was used in conducting this study.

Information was gathered through questionnaires in selected municipalities in

the Province of the Eastern Cape.

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CHAPTER 4

DATA COLLECTION AND INTERPRETATION

4.1 Introduction This chapter focuses on the analysis and a discussion of the methods and

techniques employed by the researcher in conducting this study. The analysis

of this data contributed on, among others, clarifying the procedures and

systems that are applied by municipalities when they engage in procurement

of goods and services.

The procurement implementation process that is currently used is evaluated

against the requirements of the Preferential Procurement Policy Framework

Act, (Act 5 of 2000). The intention of this legislation, among others, is to

ensure that the systems of procurement are targeted at redressing the

imbalances in distribution, and the awarding of business contracts to those

who were disenfranchised by the apartheid laws.

According to Mouton J (2006: 108) the analysis of data involves the breaking

up of data into manageable themes, patterns, trends and relationships. The

aim of the analysis is to understand the various constitutive elements of one’s

data through an inspection of the relationship between concepts, constructs or

variables and see whether there are any patterns or trends that can be

identified or isolated or to establish themes in the data.

Therefore data-analysis requires that the researcher critically outlines how the

respondents have expressed their understanding of the procurement

processes within their working environment. The researcher then has to

synthesise the responses, interpret and come up with own judgment on what

the responses indicate.

The researcher targeted five municipalities with the Eastern Cape as the

population for the study and the Supply Chain Management Unit represents

58

the sample frame. Out of the five targeted municipalities, four welcomed the

study and the researcher was given authority to proceed with the research.

The distribution of the questionnaires was between eight and 15 per

municipality per municipality and the overall number of questionnaires

distributed was 46.

4.2 Research Paradigm Paradigm can be defined as the basic belief system or world view that guides

investigation. www.nova.edu/sss/RQ/RQ10-4/krauss.pdf. Gliner and Morgan,

(2000: 17) define paradigm as a way of thinking about and conducting

research, a philosophy that guides how the research is to be conducted.

For qualitative research, it is best to become immersed in it and to move into

the culture or organisation being studied, and experience what is like to be

part of it (www.nova.edu/sss/RQ/RQ10-4/krauss.pdf).

4.3 Methods of Data-Collection The researcher personally distributed the questionnaires and collected data in

all the identified municipalities. She interacted directly and made her own

observations of the reception of her project, and how it unfolded within the

natural settings of the municipalities whilst workers are in the office

environment.

It is important to make a distinction between two types of questions that are

normally used. First there are open-ended questions which are not based on

already conceived answers. They are well adapted to exploratory studies,

case studies or studies based on the qualitative analysis of data. In contrast,

structured questions are restricting the number of possible answers. This is

according to Bless and Higson – Smith (1995: 122)

Some negative aspects of structured questions, like over-restrictive response

possibilities or exclusion of important ones, can be greatly reduced by adding

an open – ended option. These two types can be used to gain the confidence

59

and co-operation of participants in different ways. The researcher has opted

to apply both types of questions to try and extract as much information as

possible and also allow for the respondent’s own input.

This combination is intended to allow respondents to communicate their

experiences and what they understand to the best of their knowledge. The

disadvantage with structured questions is that the respondent is guided

towards a specific direction or ideal response and may feel inhibited to elicit

their opinions.

Terre Blanche & Durrheim (2002: 294) also states that closed questions have

the disadvantage of eliciting a standard set of responses from all the

respondents and thus allow for easier comparative data-analysis.

To that effect the researcher developed the questionnaires as survey

instruments that were later distributed to targeted municipalities. Each

questionnaire contained eight main questions and five 5 sub-questions -

structured and unstructured. The questionnaires were structured so that the

first few questions are easy and specific. The intention was to encourage

meaningful participation at first glance.

4.4 Data - Collection Procedure The researcher conducted the research single-handedly. The process started

by calling the offices of the Municipal Managers of the targeted sample

municipalities to briefly talk to the Municipal Manager about the study and also

secure an appointment with the supply-chain unit staff.

Out of five selected municipalities, four responded positively and a written

confirmation was also signed by the Municipal Managers (see Annexure B to

E)

The researcher visited each municipality, met with the teams and briefly

introduced herself, explained the purpose of the study and what was to be

expected after the distribution of the questionnaires.

60

Furthermore the participants were informed by the researcher of the following

ground rules which would be in force during the study:

• confidentiality assured

• voluntary participation

• one can withdraw from participating at any moment

• the process is not harmful in any way

• not degrading to any of the participants or the institution itself

• that the information they would provide, would be used solely for the

purposes of study by the researcher.

The response was positive and the researcher could clearly see that in some

municipalities staff were already briefed of what had to happen and the

reasons why some of their colleagues were not participating in the study.

Setting up appointments and even communication with the Municipal

Managers’ office was not easy. The researcher did observe at times some

scepticism as the process was unfolding. Nevertheless the study went

smoothly and 46 questionnaires (Annexure A) were distributed. Some were

later collected by the researcher because not everybody who was targeted

who was available at the time of the first visit.

Out of the 46 questionnaires, 28 (61%) were returned. The rest could not be

collected due to unavailability or refusal to participate. The researcher decided

to proceed with the analysis of data.

4.5 Data Analysis and Interpretation

4.5.1 Awareness of provisions for procurement in the Constitution. Respondents were asked if they were aware of any provisions for

procurement in the Constitution of the Republic of South Africa.

The question was thought to be of importance by the researcher because it

deliberately tries to determine how the contents of the Constitution of the

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Republic of South Africa bear meaning and therefore is the most important

legislation in the country.

Within the Municipality environment the question is supposed to determine

whether staff of the Municipality are able to understand how the Preferential

Procurement Policy Framework Act, (Act of 2005) is linked to the Constitution.

The respondents had to make a choice of either “Yes” or “No”

TABLE 4.1

OVERALL RESPONSE RATE TO QUESTION 1

RESPONSES FREQUENCY PERCENTAGE

Positive answers 27 96

Negative answers 1 4

No indication 0 -

Total 28 100

Source: Researcher’s own initiative

4.5.2 Knowledge about the Preferential Procurement Policy Framework Act (Act 5 of 2000)

Knowledge about the Preferential Procurement Policy Framework Act (Act 5

of 2000) was tested by asking the respondents to choose one legislation

which relates to the management and the implementation of the procurement

processes in South Africa.

The question was designed to reveal any ambiguities and to establish how

much knowledgeable the respondents were of the applicable legislation which

they were employed to implement on a daily basis.

The respondents have once again responded positively, except for one who

did not attempt to respond to the question.

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TABLE 4.2

RESPONSE RATE TO QUESTION 2

RESPONSES FREQUENCY PERCENTAGE

Positive answers 27 96

Negative answers 1 4

No indication 0

Total 28 100

4.5.3 In terms of Section 111 of the MFMA each municipality must develop and implement a supply chain management policy. The researcher wanted to determine if the policy was in place and fully implemented.

The question was seen as critical by the researcher, as it could have been

difficult to determine whether the objectives of the study as stated in Chapter

1 of the study could be denied or confirmed. Here the responses must clearly

indicate whether the municipality has a procurement policy in place and

whether there are committees and/or staff members to execute.

If the municipalities have implemented what is required by legislation, then

they have complied with chapter 1 (7) (1) and 8 of the Municipal Supply Chain

Management Regulations per gazette notice No. 27636 dated 30 May 2005.

According to the regulations the Municipality must establish a supply chain

management unit to implement the policy and ensure that officials have been

provided with the relevant training in accordance with any National Treasury

guidelines of supply chain management training.

The Institute of Municipal Finance Management Officers (IMFO) in its Best

Practice Manual, Policy: IA Supply Chain Management Policy say the

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municipal management, in the event that they should provide training, must

do so in accordance with the requirements stated in the Framework for

Minimum Training and Deployment issued by the National Treasury, can

access information regarding the training of officials in the procurement unit of

the municipality. www.imfo.co.za/downloands.htm

According to the responses, it cannot be disputed that to a certain extent,

municipalities are aware there are certain mechanisms which should be in

place with regards to the implementation of the Preferential Procurement

Policy Framework Act, (Act 5 of 2000) and the Municipal Supply Chain

Management Regulations.

TABLE 4.3

RESPONSE RATE TO QUESTION 3

RESPONSES FREQUENCY PERCENTAGE

Positive answers 28 100

Negative answers 0 0

No indication 0 0

Total 28 100

4.5.4 The implementation of the procurement policy

The implementation of the procurement policy requires that three levels of bid

committees be formed to oversee a fair, equitable, competitive, and a

transparent value for money process. The researcher wanted to determine the

existence of these committees

The question was aimed at evaluating the existence of the arrangements

within the municipality in terms of human resources responsible for the

procurement of goods and services.

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There was no doubt about the existence of dedicated personnel. It also

transpired that some municipalities’ procurement processes and

implementation of the policy was executed by Senior Managers whilst the

Accounting Officer was chairing the proceedings. A few responses reflected

that the Accounting Officer approved recommendations made by Managers in

this regard.

It should be noted that, according to Section 26 (1) (a), the supply chain

management policy must provide a committee system for competitive bids

consisting of at least:

• A bid specification committee

• A bid evaluation committee

• A bid adjudication committee

At least 43% of the positive responses indicated the availability of the all three

levels of the committees and the rest, which equates 57% have by indication

less than the legislatively required 3 levels. This is a very important aspect of

the Municipal Supply Chain Management Regulations of 2005 and Section

115(1)(b) because different role players exercise thorough scrutiny. There is

clear segregation of duties between the three bid committees to minimise the

likelihood of fraud, corruption, favouritism and unfair and irregular practices.

TABLE 4.4

RESPONSE RATE TO QUESTION 4

RESPONSES FREQUENCY PERCENTAGE

Positive answers 12 43

Negative answers 16 57

No indication 0 0

Total 28 100

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4.5.5 In terms of the Supply Chain Regulations Gazette notice no 26736 Section 7, supply chain management units must be established to implement the supply chain management policy. Responses should indicate whether there are institutional arrangements to execute this mandate

This question seeks to establish whether there have been arrangements,

which are internal to the Municipality, designed to accommodate the changes

as a result of the implementation of the Supply Chain Management Policy by

the municipality.

Ideally the Municipality should establish the Supply Chain Management Unit

to put into practice its procurement policy. The institutional arrangement

includes training provisioning to the officials involved in the execution of the

supply chain management policy, and also in accordance with the National

Treasury guidelines regarding the officials implementing the policy.

Half of the responses indicated the existence of a fully operational supply

chain management unit. Some respondents’ answers were ambiguous, as it

was difficult for the researcher to determine the type of structural and

institutional arrangements that were in place.

Judging from the responses one can say there is an endeavour to fully

implement the procurement policy on the side of the municipal senior

managers although must still has to be done to meet the requirements of

section 115 (1) (a; b) of the Municipal Finance Management Act 56 of 2003.

The Section states that, when implementing the supply chain management

policy, the Accounting Officer must ensure that there are mechanisms and

separation of duties in the supply chain management system to reduce

likelihood of corruption, favouritism, unfair and irregular practices.

66

It is surprising to note that there is a of lack of training in the supply chain

management unit, because capacity building and training is what the National

Treasury is willing to provide to the officials in municipalities.

Section 119 (1 to 3) of the MFMA emphasizes the competency levels of the

officials involved in the municipal supply chain management. The National

and the Provincial Treasury offices may provide assistance to this effect. This

means the onus is on the Municipality to come forward in the interest of

ensuring that they have high a capacity and that mechanisms are in place to

meet their obligations.

It is also important to mention that the government has identified the training

of personnel in all sectors of the public sector as key to providing of quality

and seamless service delivery. The Skills Development Act 97 of 1998 allows

employers to recoup some of the expenses incurred when they have engaged

their employees in capacity building. Government Gazette No 21752

(November, 2000), part 10 (a; b).

This commitment, on the side of the government, clearly demonstrates how

far government is prepared to go to ensure that public servants are fully

capacitated and in possession of the necessary skills to execute their

mandate.

TABLE 5

RESPONSE RATE TO QUESTION 5

RESPONSES FREQUENCY PERCENTAGE

Positive answers 20 71

Negative answers 1 4

No indication 7 25

Total 28 100

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4.5.6 The supply chain regulations provide a framework on how the tender evaluation process should be executed. The respondents were asked whether they were aware of the processes to evaluate tenders

The responses indicate clearly that more than 70% have knowledge that there

must be bid committees, application of the 80:20 and 90:10 scoring system,

25% are not sure about the process whilst only one respondent did not bother

to answer.

There are three levels of bid committees that should exist within the municipal

environment formed by various municipal officials and have various functions

to execute reporting to the Accounting Officer.

The committees are ranked as follows:

• The Bid Specifications Committee

• Is appointed in writing by the Accounting Officer

• Their role is to compile technical specifications, bid special conditions

of the contract, determine goals in terms of the Preferential

Procurement Policy Framework Act (Act 5 of 2000) and do market

research.

• The official who requires the service should be available to provide

clarity in some areas. www.thedplg.gov.za/index.hml

• The Bid Evaluation Committee

• The Accounting Officer appoints the Chairperson and the members.

• One Supply Chain Management member to ensure compliance with

the Supply Chain Management Regulations.

• Officials who are technical experts from the Department procuring

goods, works and services to ensure compliance with technical

specifications.

• Evaluate according to criteria, technical specifications and point.

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• Evaluate the bidders’ ability to execute the contract

www.thedplg.gov.za/index.hml

• The Bid Adjudication Committee must:

• Be determined and appointed in writing by the Accounting Officer

• Consisting of at least four cross functional Senior Managers, including

the Chief Accounting Officer or delegated staff, who report directly to

the Senior Manager. One of them should be the Supply Chain

Management Practitioner in order to guide and ensure compliance with

the Supply Chain Management Regulations.

• Be Chairperson, Deputy Chairperson and Secretariat from the supply

chain management section. www.thedplg.gov.za/index.hml

TABLE 6

RESPONSE RATE TO QUESTION 6

RESPONSES FREQUENCY PERCENTAGE

Positive answers 17 61

Negative answers 9 32

No indication 2 7

Total 28 100

4.5.7 Respondents were asked who the Preferential Procurement Policy Framework Act, (Act 5 of 2000) is targeting to benefit and give reasons for their responses.

This was a “Yes” or “No” question with a follow-up question where

respondents were asked to elaborate on their responses. At this point, almost

64% were unanimous, reflecting a positive response. The remaining 36%

either did not respond or disputed the statement.

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TABLE 7

RESPONSE RATE TO QUESTION 7

RESPONSES FREQUENCY PERCENTAGE

Positive answers 18 64

Negative answers 5 18

No indication 5 18

Total 28 100

At this point the researcher encountered numerous discrepancies, varying

views that did not relate to the main question. When the researcher posed this

question, the aim was find answers to Objective 4 of the study.

Seventy percent of the responses led towards the inability of the Preferential

Procurement Policy Framework Act (Act 5 of 2000) to assist the historically

disadvantaged individuals of this country.

The researcher observed the trend because the responses were pointing

towards the failure of the Preferential Procurement Policy Framework Act (Act

5 of 2000) to assist the HDI’s. The responses highlight too much competition

which involves big well-established companies. Ten and 20 points allocation

to affirmative procurement targets is far too little to make any difference to the

lives of the HDI’s.

It should be noted that the HDI’s are competing with companies whose roots

are all over South Africa, known for achievements, and have capacity to

implement large projects. The affirmative procurement point system and

preferential procurement does not help when competing with big businesses.

One cannot stop wondering how the Preferential Procurement Policy

Framework Act (Act 5 of 2000), and affirmative procurement really assist the

development of HDI’s in a competitive environment.

70

4.5.8 Respondents were asked what they view or understand as the role of the Preferential Procurement Policy Framework Act (Act 5 of 2000).

This question carries three options from where the respondents have to

choose from the following:

Do they improve service delivery?

Do they retard service delivery?

You are not sure?

This question has a follow-up question which asks the respondent to

elaborate on the answer provided.

Twenty eight percent the respondents did not answer the question, 46%

indicated that the procurement policy processes retard service delivery, 19%

were positive that the implementation of the processes were good for service

delivery whilst 7% were not sure about the impact of the procurement policies

on service delivery.

TABLE 8

RESPONSE RATE TO QUESTION 8

RESPONSES FREQUENCY PERCENTAGE

Yes 5 19

No 13 46

Not sure 2 7

Did not respond 8 28

Total 28 100

With regards to the sub-question, 58.3% are saying the Preferential

Procurement Policy Framework Act (Act 5 of 2000) is not assisting the HDI’s;

25 % did not substantiate on the responses they provided in question 8 whilst

16.66% believe the Preferential Procurement Policy Framework Act (Act 5 of

2000) is creating a fair competition amongst the service providers.

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4.6 Conclusion The aim of this chapter was to analyse responses and generalise on these

responses relative to the objective of study. The questionnaire contained

open-ended and closed-ended questions to allow respondents to

communicate their views.

The first three questions assisted the researcher to determine the basic

knowledge which Supply Chain Management practitioners should have. The

insight revealed supports, that to some extent, those involved know the

source of the Preferential Procurement Policy Framework Act (Act 5 of 2000)

and why this piece of legislation is important for the socio-economic

developments South Africa.

The response to the remaining questions did not reflect any reasonable extent

of sound Supply Chain Management and Affirmative Procurement results.

The ideal situation would be visible economic changes on the side of the

HDI’s.

On the last two questions the frequency of negative responses increased,

unlike in the other questions. The analysis of the responses has revealed

various views and has allowed the respondents to communicate their

understanding of how things or should be after the implementation of the

Preferential Procurement Policy Framework Act (Act 5 of 2000) should have

changed. Their comments vary from, capacity and technical know-how,

financial instabilities, too much competition between HDI’s and well developed

companies, the process is open to abuse, mark-up is too high and unrealistic.

In summary, more still needs to be done to ensure that the goals of the

Constitution together with the preferential point system are enhanced to

benefit the targeted individuals.

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CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction The chapter will firstly present the major findings of the study, and draw

conclusions. Secondly it will make recommendation based on the analysis of

the empirical study and literature review presented in Chapter 2.

The study was carried out in order to evaluate the implementation of the

Preferential Procurement Policy Framework Act, (Act 5 of 2000) within

selected municipalities of the Eastern Cape. The questionnaire was structured

such that it expose two main factors:

• Reveal just how well the Act is understood.

• To determine whether the Supply Chain Management unit of the

Municipality is implementing the policy in accordance with the

legislative framework and the Supply Chain Management Regulations

of 2005

Therefore this chapter will focus on comparing the findings with regards to the

research topic and the study objectives discussed in Chapter 1.

5.2 Main Findings and Recommendations With regards to the questionnaires, one would notice the overwhelmingly

positive answers to the first four questions. The rest of the questions dealt

with conflicting views regarding the coherent purpose of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000). What it means is that

there are no visible outcomes flowing from the implementation of the

Preferential Procurement Policy Framework Act, (Act 5 of 2000) in their

municipalities. More than 60% of the responses indicated that more still

needed to be done. There was also no recognisable economic or capacity

development achieved as a result of the implementation of the Preferential

Procurement Policy Framework Act, (Act 5 of 2000)

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The strategic aim of the Preferential Procurement Policy Framework Act (Act

5 of 2000) 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, and to Section 217(1) which suggests that

an organ of state must contract goods or services in accordance with a

system which is fair, equitable, transparent, competitive and cost-effective.

Why is there no convincing response regarding the mandate to the

implementers of this policy?

To find out more about how the respondents feel about the Constitutional

mandate the researcher structured the questionnaire so that it contained both

closed-and open-ended questions. The aim was to give respondents the

opportunity to state, in their own words, how they evaluated the supply chain

policy implementation processes and make allowance for more related issues

which the researcher might not have considered. The approach led to various

reasons. For example, there was no evidence to suggest any changes in the

lives of the targeted communities. There were criteria to evaluate the

procurement process to determine its successes and failures. The process

was also open to abuse, and the lack of training of the procurement unit staff

was also problematic.

• Section B of the White Paper on Local Government dated 9 March

1998 states that developmental outcomes of Local Government

means:

• Provision of household infrastructure and services

• Creation of liveable, integrated cities, towns and rural areas

• Local economic development

www.dplg.gov.za/documents/wpaper.htm

It is imperative that the economic development of the emerging service

providers should be targeted more at Local Government level as this tier of

government is very close to the constituencies and, as such, should be

74

vigilant and play a pivotal role in ensuring the successful implementation of

the Preferential Procurement Policy Framework Act, (Act 5 0f 2000)

In line with the Constitution Section 217, the responsibility of bringing

sustainable economic development to the citizens of this country rests

squarely on the shoulders of the Local Government structures and systems.

Local Government, in this case the successes of the municipalities, should be

measured by the improved standard of living of its inhabitants. The contracts

awarded should resemble the coherent purpose of these pieces of the

constitution. Performance evaluation of Municipalities is based on reports or

municipal score cards normally forwarded to the Provincial Treasury.

5.2.1 Competence of Supply Chain Management Unit Staff When the Municipality is recruiting it must ensure that suitable candidates are

employed and that their placements relate to their skills, experience and

qualifications. Once people are misplaced, the employer has already lost the

battle of achieving its mandate, and this is a sign of dismal failure.

Competence of staff cannot be separated from continuous training which the

personnel should receive. Most institutions do not pay attention to the

potential danger of word-of-mouth training which happens when a new

appointee joins the office. Nowadays it’s a one-teach-one-type of environment

limiting, the scope of the new person. Newly employed staff should be

formally introduced to the processes to ensure adaptation and a smooth

transition. This is employees are referred to as “Human Capital” because,

through the proper utilisation of their skills, proceeds will flow into the

institution.

The Delivery Magazine (Edition 1: 70) contends that ………more importantly,

it is the inherent skills in the local government personnel that create a catalyst

to deliver exceptional quality service.

www.sadelivery.co.za/documents/Edition1

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In the 2008/2009 budget speech, the Minister of Finance allocated R 41,9

billion to 283 municipalities. R 6 159 171 000, being the third biggest

allocation was the given to the Eastern Cape Province for both Equitable

Share and Grants.

www.wordonthestreet.org.za/index.htm

The biggest challenge is to ensure that the budget is applied effectively,

efficiently, with accountability, monitoring, control and transparency. This can

be achieved by ensuring that appointments are made on merit and candidates

are placed in posts which suit them best in terms of expertise, knowledge and

experience.

According to Cloete (1998: 111), efficiency in the public sector means

satisfying the most essential needs of the community to the greatest possible

extent, in qualitative and quantitative terms, using the limited resources that

are available for this purpose. This means that the public service should be

represented by competent personnel capable of putting the Preferential

Procurement Policy Framework Act (Act 5 of 2000) into practice

5.2.2 The Role of Local Private Sector and Academic Institutions Browning, P. (1989: 25) argues that if the concept of Black Economic

Empowerment is to be translated into reality, there must be genuine and

whole-hearted commitment on the part of both the government and the

established business. Government is allocating billions of rands for the

procurement and realises its commitment to the delivery of services, good

governance and achieving socio-economic objectives through procurement.

There are institutions available that are of assistance to the development of

municipal staff in service delivery. The Development Bank of South Africa

(DBSA) is one such institution.

The purpose of DBSA is to accelerate sustainable socio-economic

development by funding physical, social and economic infrastructure. Their

goal is to improve the quality of life of the people in the region. DBSA has

76

since expanded its role by providing support to municipalities for the

implementation of projects such as Project Management and Engineering and

Finance through their initiative called “Siyenza Manje”.

www.dbsa.org/Projects/Documents

Such programmes are a clear indication that the private sector is realising that

they cannot be successful in their endeavours if their local municipality is not

succeeding in its objectives. One one’s cannot be separated from the other.

DBSA has realised this need and is already assisting municipalities in the

implementation of projects although there is still no focus towards the

development of HDI’s.

Academic institutions are another body of knowledge where ties should be

developed for learning and skills development opportunities by not only

bringing and implementing training programmes, but to monitor the results of

these programmes. It could be to the advantage of all to have capacity and

skills development programs introduced at high school level, so that we rid

our young citizens of the HDI concept, which in ten years time will not make

any sense.

Browning (1989: 111), draws attention to the concept “Trade” which he

defines as business, commerce or a skill.

The South African Concise Oxford Dictionary (2006) defines trade as a job

requiring manual skills and special training.

Browning contends that it is usually during a period of apprenticeship, which

involves a certain amount of theory and large amounts of practice, that a

tradesman learns a skill. It’s at this time that one can make mistakes and

learn to correct them under the supervision of the experienced tradesman.

One cannot agree more with him when he says that this process is often

overlooked and assumptions are made when one is evaluated to implement a

project. The point that normally clouds the application of the Preferential

77

Procurement Policy Framework Act, (Act 5 of 2000) is the need to allocate

business to the Historically Disadvantaged Individual (HDI) even if he as

owner has no idea of how the project is to be executed.

The awarding of a tender, without regard for the capacity of the owner and

without evaluating the abilities of the rest of the team is risky undertaking of

government. The tendency is to appoint unemployed people who are qualified

and reflect those skills when submitting tenders. What they disregard is the

fact that people will always market themselves and are free to resign. They

have no obligation to work for the company, whether the project is complete

or not.

In such a situation municipalities are to blame because they award tenders to

HDI’s companies, even if they will depend on their employees to implement

projects on their behalf, as company owners. If what is proposed by Browning

is to be taken seriously, then HDI’s in business will be able to start delivering

finished products.

When a contractor is blacklisted for failure to complete a project, he is not

protected by the team who motivated the awarding of the tender on the basis

of competency of staff, rather than the business owner. If bid committees who

are awarding contracts targeting HDI’s are less concerned about their

capacity to perform, great financial losses will never decline. This destroys the

image of emerging businesses.

The Daily Dispatch dated 05/06/2008 published an article in which a black

owned company was awarded a tender worth R 4,7m despite having no

capacity to wash at least 1000 pieces of laundry a day. No inspection of the

laundry premises was done by the Department of Health to ensure they had

sufficient equipment and necessary chemicals. Instead workers were dealing

with critical washing themselves.

www.dispatchonline.co.za

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The Regulations in terms of the Public Finance Management Act, (Act 1 of

1999) which came into effect on 5 December 2003, point 6 (2) says the supply

chain management system must provide for:

• The adjudication of bids through a bid committee

• Bidding procedures

• The approval of bid committee recommendations

Supply Chain Management Regulations provide guidelines on how and what

to evaluate in a tender document prior to awarding a business contract. It is

very clear that more still needs to be done in terms of evaluating the

performance of officials and the service providers.

5.2.3 Joint Venture Agreements A Joint Venture is an agreement by two or more individuals or entities to

engage in a single project or undertaking. Joint Ventures are used as a

means for fund-raising and spreading of risks. A Joint Venture is similar to a

general partnership although, in the case of the joint venture, when the project

has been accomplished, the entity ceases to exist.

www.winterandcompany.com/comm

Joint Venture agreements are seen as a means of ensuring that the HDI is

twinned with a bigger company in the form of a joint venture where the bigger,

well-established company is expected to develop the capacity of the other

partner.

The Green Paper on Public Procurement (113: 4.21) is encouraging the

engagement of bigger companies to be sub-contractors and assist the

implementation of projects, although there is a warning victimisation and

fronting. The responses provided in the questionnaires point to problems of

financial instability on the side of the HDI and the process being open to

abuse. Hence 60% of the respondents feel the ruling procurement processes

are not assisting the HDI’s. Their socio-economic status could be deteriorating

79

rather than improving, as they find themselves indebted and their assets

attached.

www.targetedprocurement.com/papers/general/Greenpaper.PDF

It would make sense for municipalities to have an internal capacity that would

see to the formulation of Joint Ventures in a more controlled environment so

that there are roles of parties are clear. Strategies and goals on how skills will

be transferred to the HDI’s and when the bigger company will exit should be

documented. Open ended discretionary powers of big companies over the

HDI must not be too wide and unrestrained. Municipalities should be mindful

of this unintended consequence and reduce this problem.

A team of municipal officials should form a project monitoring cluster with all

departments within the municipality represented. The cluster mandate should

be to ensure that the skills transfer programme of the Joint Venture is adhered

to and to report to specific standing committees of the municipality. The

underlying objective is to provide lifetime development to the HDI to realise

the constitutional mandate.

Key performance areas should be identified and be used as guide for building

the operational plans for the Joint Venture organisation and to measure the

outcomes. It may be better to ensure that there are regular performance

audits to determine the extent to which this interactive approach is benefiting

the HDI.

5.2.4 Capacity Availability versus Budget Availability If municipalities are unable to implement projects which they have identified in

their Integrated Development Plan, is it safe to burden them with large sums

of money they cannot expend? Is this not the reason for roll-overs and

services that are below standard? Perhaps too much pressure on improving

service delivery is being exerted in terms of a budget being made available. It

is important to evaluate what the Municipality can deliver. They have their

mouths full whilst they are unable to chew. Then they are branded non-

performers.

80

The study was carried out in a province regarded as poorest of the poor.

Municipalities have difficulty in recruiting candidates of high calibre because of

this stigma and this reputation should be removed.

The government must introduce allowances to entice candidates from cities to

come and work for these municipalities in predominantly rural areas. The

government must go the extra mile and introduce salary-packages intended

for such recruits. To a certain extent this action will assist in building the

capacity of the municipality to deliver on its IDP projects.

The intention is not to phase out the Joint Venture business but rather to

address and strike a balance between the constitutional mandate and the key

programmes of the Reconstruction and Development Programs (RDP) of the

government namely:

• Meeting basic needs

• Developing our human resources

• Building the economy

• Democratising the state and society

• Implementing the RDP www.anc.org.za/rdp/rdp2.html

5.2.5 Risk Capital Risk capital is defined as funding for firms with excellent growth capital,

provided mostly by venture capital firms, or other investors who are willing to

take a big risk with the potential for great financial gain.

www.businessfinance.com/risk-capital.htm

Browning (1989: 169), contends that, although providing capital will initially be

a high risky, government could show its commitment to Black Economic

Empowerment HDI’s by allowing financiers to regard this as risk capital with

special tax advantages.

81

The Government should be willing to introduce a programme, aimed at

providing financial assistance on merit, to emerging companies. Such

assistance has, in the past, been enjoyed by farmers where loans were

provided at concessionary rates. There are institutions offering financial

assistance, but conditions are not conducive to circumstances of the small

business contractor.

The Government’s financial assistance comes primarily in the form of Khula

Enterprise Finance Limited. Small business can make use of the many Khula

products through banks and loan providers called Retail Finance

Intermediaries or RFI’s. Although applicants need less security they must still

be profitable. The money is loaned at a higher rate than that which is available

from banks and the repayment periods are shorter.

www.sanlam.co.za/eng/solutionsforyou/cobalt/startinasmallbusiness.htm

5.2.6 Social Responsibility by Private Sector It is time that the private sector redirect their focus and efforts not only

improving sports, but also socio-economic responsibility within their municipal

area of jurisdiction. This is another area that can have productive, fruitful

outcomes towards the up-liftment of the living conditions of the communities

staying around these companies. Mines and industries in the area should

ensure that they assist in bringing out these talents, build schools, and

provide financial assistance, just as they do with sporting bodies around the

country.

5.2.7 Engaging Retired Skilled Citizens Secondment of retired, knowledgeable and qualified, multi-skilled people to

provide much needed mentoring of the Historically Disadvantaged Individuals

of this country is another method of improving knowledge of the HDI.

82

5.2.8 Monitoring and Control System The MFMA Chapter 14, Section 165, requires that municipalities establish

their own internal audit units. Alternatively, they can outsource the function if it

is cost-effective. The unit should, amongst other functions, report on

performance management, risk and risk management and internal controls.

One of the roles of the internal audit should be to authenticate the tender

information such as ownership, shareholding, past projects performance and

customer satisfaction, registration and membership to professional bodies and

so on. Also the Internal Audit should ensure that the segregation of duties is

ensured amongst the role players in the procurement process to reduce fraud

and corruption.

Authentification of tender information is important in curbing fraud and

misrepresentation. On 25 April 2008 the Daily Dispatch exposed a company

which has defrauded the state of close to R 11m as it was awarded tenders

whilst acting as a professional engineer for almost eight years. The article

states that in October 2001 the award was made after amendments had been

made by adding four other directors, only one had professional registration

number. However, the state alleged that by February 2002, two of the

directors, who had 30% interest each, had resigned.

www.dispatchonline.co.za

In most municipalities policies are in place, but one seldom finds a policy on

how to monitor the implementation of projects whilst a huge chunk of

municipal budgets goes towards engineering services and infrastructure

projects. Therefore the internal audit should make regular visits to sites report

first hand information on progress on construction sites.

If then the greater percentage of municipal budgets is spent on procurement

of services, is it enough to report quarterly to the Provincial Treasury on the

preferential procurement?

83

The Green Paper on Public Sector Procurement Reform in South Africa states

that the National Procurement Compliance Office will, amongst other

functions:

• Monitor the manner in which policy is implemented in respect of

development objectives, the manner in which targets are set and

attained, value-for-money is obtained, delivery mechanisms employed

and so on.

• Administer national procurement legislation and assist procurement

offices/centres in executing the National Procurement Policy and

sanction those who are not adhering to or implementing such policy.

• Investigate any complaints received from the public regarding tender

procedures and irregularities

• www.info.gov.za/greenpapers/1997/publicproc.htm

Bolton, (2007: 312) says insofar as can be determined, a procurement

compliance office is not yet in operation. Until such time that a Compliance

Office is established a number of institutions play a role in enforcing

compliance with procurement rules - the Public Protector, the Auditor General

and National Prosecuting Authority.

It would be ideal to have procurement compliance offices in each municipality

which will report to the Accounting Officer and the National Procurement

Compliance Office to reflect on the implementation of the Preferential

Procurement Policy Framework Act (Act 5 of 2000) and what the legislation

has achieved monthly and quarterly. The Project Monitoring Unit of the

Municipality should comprise staff who possess Project Management skills

and quality control and who, upon awarding of tender, supervision will begin.

The researcher has find, through literature review that monitoring

accompanied by decisive action as a gap between the municipalities and

contractors. The closing of this gap will ensure quality basic services delivery,

monitoring and control as key indicators of proper service delivery.

84

5.3 Conclusion The study has revealed that the elements of management, namely planning,

organising, leading and control are not balanced. They are all critical in public

administration.

Projects are mapped out geared towards improving the socio-economic status

of the previously oppressed people of our country. Public servants should not

fail the national ideals and root out the perceptions that the government has

very good programs but cannot implement them. Departments exist for

specific reasons and various responsibilities that should culminate in

satisfying the expectations of the population. The Preferential Procurement

Policy Framework Act (Act 5 of 2000) emanates from South Africa’s Supreme

Constitution, designed to address the socio-economic imbalances, a good

and genuine concern, but the implementation is let down by poor monitoring

and reporting systems.

Policies and procedures should not be manipulated to favour the HDI’s, as

could have been in the case study of the R4.7m tender awarded by the

Department of Health in the Eastern Cape for hospital laundry service, and

also the awarding of tenders to company, posing as an engineer for more

than six years.

Public Service employees should take their work more seriously, rid

themselves of corrupt activities, and inculcate a profound commitment to

deliver seamless integrated services to communities, previously oppressed by

apartheid system, services that they, as public servants can be proud of.

Public and private sectors should strive to complement each other; synergy

must exist to enhance the socio-economic status of HDI’s, and realise the

ideals of the Preferential Procurement Policy Framework Act, (Act 5 of 2000).

According to Gildenhuys, (2006: 503), the performance audit and the auditor

should examine the following:

• Whether policy objectives were actually determined and whether policy

decisions were made legally and legitimately

85

• Whether established policy goals and objectives were clearly defined

• Whether the necessary instructions to the personnel were

subsequently given in accordance with the approved policy goals.

If this is the way to evaluate performance, then municipalities should ensure

that there is ongoing monitoring and reporting by the Municipal Performance

Monitoring Cluster. The Internal Audit Unit should intensify its role to ensure

value for money.

86

REFERENCES Alveenson, M and Deetz, S. 2000. Doing Critical Management Research.

Sage Publications. London

Babbie, E. and Mouton, J. 2006. The Practice of Social Research. Cape

Town: Oxford University Press

Balshaw, T and Goldberg, J; 2005. Cracking Broad-Based Codes and

Scorecard Unpacked. Human and Rousseau and NB Publishers, Cape Town

Bates, B; Botha, M; Botha, S; Goodman, S; Ladzani, W; De Vries, C; de

Vries, L; November, M and Southey, L. 2006. Business Management – Fresh

Perspective. Maskew Miller Longman. Cape Town

Bless & Higson-Smith. Fundamentals of Social Research Methods - (An

African Perspective). 1995. Juta & Co. Ltd, Kenwyn

Bolton, P. 2007. The Law of Government Procurement in South Africa.

LexisNexis Butterworths. Durban

Browning. P. 1989. Black Economic Empowerment. Fortein Publishing

Company, Parklands, Cape Town

Cloete, J. J. N. 1998. South African Public Administration Management. J.L.

Van Schaik Publishers. Pretoria.

Collins, J and Hussey, R. 2003. Business Research: A Practical Guide for

Undergraduate and Postgraduate Students. Palgrave Macmillan. London

Craythorne. D. L.; 2003. Municipal Administration – The Handbook.

Lansdown: Juta & Co. Ltd

87

David, M and Sutton, C. D. 2004. Social Research: The Basics. SAGE

Publications Ltd. London

Fourie, M and Opperman, L. 2007. Municipal Finance and Accounting. Van

Schaik Publishers. Pretoria

Gildenhuys, J. S. H.; Knipe, A.; 2000. The Organisation of Government – An

Introduction. Van Schaik Publishers. Pretoria

Gildenhuys, J. S. H. 2006. Public Finance Management. J. L. Van Schaik

Publishers. Pretoria

Gliner. J. A. and Morgan, G. A. 2000. Research Methods in Applied Settings:

An Integrated Approach to Design and Analysis. Lawrence Erlbaum

Publishers. London

Hugo, W. M. J.; Badenhost-WeissJ. A.; Van Biljon, E. H. B. 2004. Supply

Chain Management. Van Schaick Publishers. Cape Town

Lovell, R.; Managing Change - In the New Public Sector. 1994. Longman

Information and Reference, Longman Group Limited. England

Martin Terre Blanche & Kevin Durrheim. 2002. Research in Practice:

Applied Methods for Social Sciences. University of Cape Town Press

Cape Town.

Matthew David & Carole D, Sutton. 2004. Social Research – The Basics.

SAGE Publications Ltd. London.

Mouton, J. How to succeed in your Masters & Doctoral Studies (A South

African Guide and Resource Book). 2006. Van Schaik Publishers, Pretoria

Neuman, W. Lawrence, 2006. Social Research Methods – Qualitative and

Quantitative Approaches, Pearson Education Inc. United States of America

88

Reddy, P. S.; 1995. Perspectives on Local Government Management and

Development in Africa. Kohler Carton and Print. Pinetown

Shah, A.; 2005. Public Services Delivery. The International Bank for

Reconstruction and Development / The World Bank. Washington DC.

Wilson, J and Hinton, P; 1993. Public Services & The 1990’s: Issues in Public

Service Finance and Management. Tudor Business Publishing Limited. Great

Britain.

Van der Walt, G.; Van Niekerk, D.; Doyle, M.; Knipe, A.; Du Toit, D. 2002.

Managing Results in Government. Sandown: Heinemann Publishers,

Van Weele, Arjan J. 2000 Purchasing and Supply Chain Management –

Analysis, Planning and Practice, Thomson Learning, United Kingdom

LEGISLATION South Africa. 1993. The Constitution of the Republic of South Africa, Act 200

of 1993. Pretoria: Government Printers.

South Africa. 1996. The Constitution of the Republic of South Africa, Act 108

of 1996. Pretoria: Government Printers.

South Africa. 1997. Green Paper on Public Procurement Reform in South

Africa. Pretoria: Government Printers.

South Africa. 2003. Municipal Finance Management Act 56 of 2003.

Pretoria: Government Printers.

South Africa. 2000. Preferential Procurement Policy Framework Act, Act 5 of

2000. Pretoria: Government Printers.

South Africa. 2000. Municipal Systems Act 32 of 2000. Pretoria: Government

Printers

89

South Africa. 1950. Group Areas Act of 1950. Pretoria: Government Printers.

South Africa. 1953. Bantu Education Act of 1953. Pretoria: Government

Printers.

South Africa. 1994. White Paper on Restructuring and Development

Programme. Pretoria: Government Printers.

South Africa. 2003. Broad-Based Black Economic Empowerment Act 53

Pretoria: Government Printers.

South Africa. 2000. Construction Industry Development Board Act 38.

Pretoria: Government Printers.

REGULATIONS Supply Chain Management Regulations. Government Gazette no. 27636, Vol.

479 dated 30 May 2005.

Skills Development Regulations: Government Gazette No 21752 of 2000

DICTIONARY South African Concise Oxford Dictionary. 2006. Oxford University Press

Southern Africa Pty. Ltd. Cape Town

WEBSITES http://ec.hku.hk/acadgrammar/report/resProc/research.htm

http://www.info.gov.za/greenpapers/1997/publicproc.htm

http://ec.hku.hk/acadgrammar/report/resProc/research.htm

http://www.info.gov.za/greenpapers/1997/publicproc.htm

http://www.anc.org.za/rdp/rdp4.html

90

www.bee.sabinet.co.za

www.busreport.co.za/index.php

www.imfo.co.za/downloads.htm

www.nova.edu/sss/RQ/RQ10-4/krauss.pdf

www.businessfinance.com/risk-capital.htm

www.dbsa.org/Projects/Documents

www.disparchonline.co.za

www.dplg.gov.za/documents/wpaper.htm

www.sanlam.co.za/eng/solutionsforyou/cobalt/startinasmallbusiness.htm

www.targetedprocurement.com/papers/general/Greenpaper.PDF

www.winterandcompany.com/comm

www.wordonthestreet.org.za/index.htm

91

ANNEXURE A Research Questionnaire The questionnaire is directed to officials responsible for procurement in a

municipality.

1. Are you aware of any provision for procurement processes in the

Constitution of the Republic of South Africa?

1.1 If Yes, what does the Constitution say about procurement processes?

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

2. From the list given below, choose one legislation which relates to the

management and the implementation of the procurement processes in

South Africa?

Municipal Structures Act

Preferential Procurement Policy Framework Act

Public Service Act

3. Does your municipality deal with procurement

processes?

3.1 If Yes, is there a formal process for dealing with procurement processes in

your municipality?

4. Is your municipality having specific committees and/or officials responsible

for procurement processes?

Yes / No

Yes / No

Yes / No

Yes / No

92

4.1 If Yes, can you mention the designations of these officials and/or

committees?

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

5. Can you describe the organizational (structural) arrangements for the

implementation of the Procurement Policy Framework Act (Act 5 of 2000)

which exist in your municipality?

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

_____________________________________________________________

6. Can you describe the processes of selecting and awarding tenders in your

municipality? You may use examples to do so.

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

7. Would you say that the implementation of the Preferential Procurement

Policy Framework Act (Act 5 of 2000) is to the benefit of historically

disadvantaged individuals?

Yes / No

93

7.1 Can you please elaborate on the answer you have given in 7 above?

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

8. What do you see as the role of the implementation of the procurement

processes in service delivery?

Do they improve service delivery?

Do they retard service delivery? OR

You are not sure?

8.1 If yes or no, can you elaborate on the answer you have given above?

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

Thank you, for your co-operation

94

ANNEXURE B

1093 Zone 5

ZWELITSHA

5608

29 July 2008

The Municipal Manager

Dear Sir/Madam

REQUEST FOR A PERMISSION TO UNDERTAKE RESEARCH I am currently registered for the degree of Master of Public Administration at

Nelson Mandela Metropolitan University. My studies include a treatise with the

following research topic.

“AN EVALUATION OF THE IMPLEMENTATION OF THE PREFERENTIAL

PROCUREMENT POLICY FRAMEWORK ACT (NO. 5 OF 2000) WITH

REFERENCE TO SELECTED MUNICIPALITIES IN THE PROVINCE OF

THE EASTERN CAPE”

I hereby request permission to undertake research in your municipality.

Participation of the respondents will be voluntary with the option of

withdrawing at any stage of the process and there will be no negative

consequences linked to non-participation. An informed consent will be

requested before the respondents’ participation in the research process.

Confidentiality will be ensured. Information obtained will be used for the

purposes of the study only and I undertake to ensure that the information will

be used in such a way that the respondents cannot be identified. Therefore,

the final report will not include identifying information.

95

Questionnaires will be used to collect data from selected officials in Supply

Chain Management Division. Respondents will be informed that they are not

obliged to answer all questions, if they feel uncomfortable to answer certain

questions they may not answer them.

By participating in the study, respondents could contribute towards the

identification and elimination of factors which may negatively affect the

implementation of the Preferential Procurement Policy Framework Act.

The research findings will be disseminated to the municipalities who have

participated in the study

Your assistance in this endeavour is highly appreciated.

Yours sincerely

Ms Nandipha Nano