Tinashe Chigwata, Jaap de Visser, and Michelle R Maziwisa, Dullah Omar Institute, University of the Western Cape
Relevance of the Practice
Municipalities procure goods and services from private entities almost daily. These goods and services are often essential for ensuring the provision of basic amenities such as water, sanitation, electricity, and refuse removal. Far too often, there are problems in the way projects are designed and in the way service providers are appointed, or there are problems with the content of the agreement and transparency of the agreement. Failure to make procurement information publicly available reduces transparency and accountability. Similarly, service providers are often paid for substandard delivery, or even for delivery that did not take place at all. This has a direct impact on basic services, because municipalities enter into contracts with private entities for the provision of services such as the resurfacing of a road, delivery of water tanks, regular cleaning of toilets, or street lighting, and sometimes these services are not in fact provided. The municipalities seem not to have adequate systems in place to prevent and address these problems. However, communities are equally important here as they are well placed to assess whether a service is being delivered or not. This practice note discusses the practice of procurement and focuses on the role of local governments in entering into contracts with private companies.
Description of the Practice
To procure from a private entity, municipalities (both urban and rural) must: (1) design and advertise a project, (2) select a service provider through a fair bidding process, (3) conclude an agreement with the successful bidder which includes the details of what must be delivered, (4) monitor the actual delivery as specified in the contract, and (5) only pay when the goods or services are delivered as per the contract. The key players in the procurement process are municipalities, private business entities, communities and the national treasury. The role of the national treasury is essentially regulatory, whereas communities’ role is one of monitoring and ensuring good governance through accountability and transparency. Local government’s role is in procuring services mainly from private entities and following the regulatory legal framework as discussed below.
Municipal Procurement: Laws and Regulations
The Constitution provides the basic framework for procurement as follows: ‘When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective’ (Section 217). Organs of state are required to implement procurement policies, and such policies may take into account the need for affirmative action and preferential allocation of contracts (Section 217(2) of the Constitution). The Broad Based Black Economic Empowerment (BB-BEE) Act 53 of 2003 regulates affirmative action. The Municipal Finance Management Act of 2003 (MFMA) and the Preferential Procurement Policy Framework Act 5 of 2000 have provided a statutory framework for procurement (including preferential procurement) for all organs of state and guide procurement at the local government level. These regulations require municipalities and municipal entities to implement a supply chain management policy that is ‘fair, equitable, transparent, competitive and cost effective’ (see Regulation 2(1)(b)). Regulation 36 (1) states that such a policy ‘may allow the accounting officer’ to ‘dispense with the official procurement processes established by the policy’ in a number of instances including ‘an emergency’, although the regulations do not define an emergency. Moreover, it is silent on what procurement information must be made publicly available during ‘an emergency’. However, after the introduction of the eTender Publication Portal in 2016, the National Treasury publishedMFMA Circular no 83, which sets out the requirements for the publication of procurement information by municipalities and municipal entities on the portal. This circular provides detailed guidelines regarding the advertisement of tenders and the publication of awards, cancellations, deviations, and extensions to contracts on the portal.
Procurement Regulations during the Covid-19 Emergency
Since the declaration of the national state of disaster on 15 March 2020, the National Treasury has issued a number of MFMA circulars to guide emergency procurement. These circulars apply to both urban and rural municipalities in the same manner. A recent circular is MFMA Circular no 102, which requires municipalities and municipal entities to put in place additional procurement and expenditure measures to monitor interventions taken to combat the spread of Covid-19. In particular, they must undertake to:
- establish an internal system for financial control, risk management, and reporting in order to account for the funds used for the Covid-19 disaster;
- ensure that officials committing any expenditure are duly authorised or properly delegated;
- avail internal audit functions to conduct audit checks in order to pick up and prevent irregularities pro-actively; and
- monitor expenditure regularly and generate frequent expenditure reports (at least weekly) including monitoring any risks that may arise.
In normal times, procurement has to be conducted in terms of the MFMA and Preferential Procurement Policy Framework Act, and follow the relevant municipality’s Supply Chain Management Policy. The normal procurement process is embedded with checks and balances to ensure transparency and accountability, and as such the process takes longer to complete. This long process was therefore replaced with a shorter process in terms of the ‘emergency procurement’ process which allows certain checks to be by-passed, and reporting to follow long after the procurement has been completed. Some of the processes by-passed include the requirement to comply with preferential procurement which favours procurement from historically disadvantaged groups as part of its points system used when comparing service providers, for example.
These measures relate mainly to the internal control and monitoring of Covid-19 expenditure, and not to transparency in the expenditure of Covid-19 funds, thereby limiting communities’ capacity to track the use of these funds.
Circular no 102 also deals with the procurement of PPE items and face masks. It provides maximum prices for these items in bids to ensure that municipalities achieve value for money. The circular reiterates that municipalities may deviate from the competitive bidding process for goods and services not covered by the circular but are necessary to combat Covid-19, and this must be done in terms of Section 36 of the Municipal Supply Chain Management Regulations. It states specifically that ‘the Covid-19 pandemic is a situation that justifies the use of emergency procurement provisions’. MFMA Circular no 62 allows for municipalities to expand contracts for goods by up to 15 per cent. Circular no 102 increases the threshold to 30 per cent or R30 million for construction-related contracts, and 25 per cent or R25 million for the period of the pandemic to prevent or minimise the effects of Covid-19. Section 166(3) of the MFMA states that a contract can only be amended if the reasons for the proposed amendment have been tabled in council, and if the local community has been given notice of the intention to amend the contract and invited communities to submit representations to the municipality. It is not yet clear whether communities are being invited to make such representations in practice.
Circular no 102 (as well as the previous two circulars 100 and 101) does not make any specific mention of the publication of tender notices and bid specifications for emergency procurement. This circular does however, require municipalities to upload a schedule of questions and answers related to specific tenders on their website to ensure that all bidders receive the same information. Finally, Circular no 102 states that any public bid openings must comply with the regulations published in March 2020, under the Disaster Management Act of 2002.
On 27 May, the National Treasury released MFMA Circular no 103, which deals more broadly with preventive financial measures and internal financial controls. Section 7 of the circular focuses on emergency procurement control measures. While the section highlights that the principles of fairness, equity, transparency, competitiveness, and cost-effectiveness must be maintained, no specific reference is made to ensuring the public availability of procurement information such as bid specifications.
Finally, the directions issued by the Minister of Cooperative Governance and Traditional Affairs in terms of Section 27(2) of the Disaster Management Act contain an important provision that may assist in holding municipalities accountable, but only after the end of the state of disaster (which has been extended several times). Direction 6.7.3(h) provides that municipalities must ‘report all procurement undertaken during the period of the state of disaster to the first council meeting after the lapsing or the termination of the state of disaster’. Reporting to the council will ensure that the information is publicly available. It is not clear what type of information must be included in the report, but communities and councillors can insist that it contains the full and detailed information, including the expansion of contracts.
Assessment of the Practice
The main object of procurement is for local government to be able to perform its constitutional obligations through contractual agreements with private entities. This object has only been partly met for various reasons, the most glaring being the absence of transparency and accountability. This has been the case in the broader procurement process prior to the Covid-19 pandemic and has only worsened during the pandemic. Prior to the pandemic, there have been numerous instances of corruption allegations, fraud and poor audit outcomes in both urban and rural municipalities. It is difficult for rural communities to insist on transparency in procurement processes due to factors such as illiteracy, and even where communities are literate, bid documentation uses technical language and budget proposals that are not easily understood. There are also fewer civil society organisations to assist rural communities in this regard, in comparison to urban centres.
Additionally, although it has been imperative to use emergency procurement processes during the Covid-19 pandemic in order to facilitate an efficient and prompt response to the nationwide emergency, several challenges have come out of the Covid-19 emergency procurement processes. For example, there have been several reports of inflation of prices in contracts, and corruption, failure of contractors to provide services already paid for such as delivery of water into water tanks in both urban and rural areas, as well as reduced public participation due to lack of transparency and lack of access to procurement information.
Finally, preferential procurement presents a great opportunity for redressing the legacy of apartheid as envisaged under Section 9 of the Constitution. There has been significant uptake of this opportunity, however, there have been challenges concerning the Broad Based Black Economic Empowerment (BB-BEE), such as reports of manipulating the system by fronting previously disadvantaged persons as being part of business leadership/ownership in order to benefit from preferential procurement, without them actually being substantially involved in the running of the business. Additionally, there has also been skewed benefits to a few elites among the previously disadvantaged persons, the so-called ‘black diamonds’.
References to Scientific and Non-Scientific Publications
Constitution of the Republic of South Africa, 1996
Preferential Procurement Policy Framework Act 5 of 2000
Broad Based Black Economic Empowerment Act 53 of 2003
Municipal Finance Management Act of 2003 (MFMA)
MFMA Circular no 83 on the Advertisement of Bids and the Publication of Notices in respect of Awarded Bids, Cancelled Bids, Variations and Extensions of Existing Contracts on the eTender Publication Portal
MFMA Circular no 100, Emergency Procurement in Response to the Covid-19 Pandemic
MFMA Circular no 101, Covid-19 Bulk Central Procurement Strategy for Government Institutions
MFMA Circular no 102 (with amendments), Emergency Procurement in response to the National State of Disaster MFMA Circular no 103, Preventative Measures in response to the Covid-19 Pandemic that resulted in the National State of Disaster
 We wish to acknowledge the valuable inputs and insights from Carlene van der Westhuizen.
 This is discussed in report section 6.4. in relation to public participation and transparency of Covid-19 emergency procurement.
 Discussed further in report section 6 on People’s Participation in Local Decision-Making.
 See report section 6 on People’s Participation in Local Decision-Making.
 Janine Erasmus (ed), ‘Understanding Corruption in Tenders’ (corruption watch 2015) <https://www.corruptionwatch.org.za/wp-content/uploads/2015/06/Corruption-Watch-Understanding-tender-corruption.pdf>.
 Paddy Harper, ‘Blanket Scandal Exposes Potential for Covid-19 Corruption’ (Mail & Guardian, 16 April 2020) <https://mg.co.za/article/2020-04-16-blanket-scandal-exposes-potential-for-covid-19-corruption/>.
 Erasmus (ed), ‘Understanding Corruption in Tenders’, above.
 This is addressed in report section 6.4. on Transparency in Local Government Procurement during Covid-19.