Category: Anti-Corruption

Photo: Nelson Mandela Bridge, Johannesburg (South African Tourism)

South Africa’s National Research Foundation (NRF) (which coordinates with the nation’s research institutions) hosted a weeklong conference, September 3-6, 2024, to discuss South Africa’s new Public Procurement Act, Act No. 28 of 2024.

The Public Procurement Act was approved by South African President Cyril Ramaphosa in July 2024 and now must be implemented through regulations to be issued by South Africa’s Ministry of the Treasury under Section 63 of the new Act. A number of officials from the Ministry joined the Pretoria conference, which was coordinated by Professor Geo Quinot of Stellenbosch University and Shaun Scott, a leading procurement expert in South Africa.

The conference focused on two core issues under the new law: the methods of procurement that will be adopted under the new regulations, and how specifications should be addressed. As the discussion below reflects, those topics extended to related issues such as anti-corruption measures, a new bid challenge forum, and potential issues in South Africa’s international trade policies.

The two-day intensive conference, which was attended by several hundred participants from around the world, was book-ended by academic colloquia on methods of procurement and specifications.

Methods of Procurement

How procurement competitions will be run — the “methods of procurement” — is always a key issue under any procurement law. The new South African Procurement Act’s Section 24 is largely silent on what procurement methods South Africa is to use, and leaves it to the Ministry of the Treasury to choose the appropriate methods. (Shaun Scott and his team have compiled an extraordinary list of nearly 200 procurement methods that have been developed worldwide.) The methods ultimately selected in the implementing regulations must be in keeping with Section 217 of the South African constitution, which calls for fairness, equitability, transparency, competitiveness, and cost-effectiveness in the procurement system.

One key goal in choosing appropriate procurement methods will be to encourage innovation in procurement, and Professor Christopher Yukins of George Washington University Law School presented to the conference on some of the innovative procurement approaches that have been followed in the U.S. procurement system and elsewhere.

Professor Sope Williams of Stellenbosch followed up to urge, as had Professor Yukins, that South Africa consider adopting “competitive dialogues” — multilateral competitive negotiations — as a method of procurement.

The UN Commission on International Trade Law (UNCITRAL) model law has embraced competitive dialogue (known under Chapter II as “requests for proposals with dialogue”), as have the World Bank’s Procurement Framework and the European Union’s procurement directives. In the U.S. government’s system over 60 percent of procurements are conducted using competitive dialogue, and extensive guidance on competitive negotiations has been promulgated under Part 15 of the U.S. government’s Federal Acquisition Regulation.

Competitive dialogue carries more risks of corruption than traditional open tendering, because multilateral negotiations (as Chris Yukins explained in his presentation) present more opportunities for corruption than traditional tenders. (The National Research Foundation’s own “tender box” is shown at left; these types of boxes were long used by bidders for delivering sealed bids.) Unlike traditional tendering, however, competitive dialogue allows the purchasing agency to assess offerors’ diverse prices and technical solutions to obtain best value, rather than simply awarding to the lowest bidder against rigid government specifications.

The new methods may be shaped, in part, by technology. Section 28 of the new law calls for South Africa’s Public Procurement Office to implement a modern online procurement system, with open data. In his presentation to the NRF conference, LUISS university’s Gian Luigi Albano (CONSIP, Italy) noted that although it may not make sense to enable all procurement methods by technology, it will be important to determine early on which methods will be supported by the new integrated platform.

Editor’s note: Gian Luigi Albano and other experts joined for a webinar on the new U.S. reverse auctions rule on Wednesday, September 11, 2024

Anti-Corruption Measures

South Africa may be able to undertake more advanced methods of procurement, such as competitive dialogue, because of the anti-corruption strategies built into its new law. As a commission headed by South Africa’s former Chief Justice Raymond Zondo noted in its recent report on “state capture,” South Africa is emerging from a period of intense corruption, much of it centered on public procurement, under the administration of former president Jacob Zuma. As Devi Pillay of the Public Affairs Research Institute (PARI) explained, quoting from the commission’s report:

State capture in the South African context evolved as a project by which a relatively small group of actors, together with their network of collaborators inside and outside of the state, conspired systematically (criminally and in defiance of the Constitution) to redirect resources from the state for their own gain.

This was facilitated by a deliberate effort to exploit or weaken key state institutions and public entities, but also including law enforcement institutions and the intelligence services.

To a large extent this occurred through strategic appointments and dismissals at public entities and a reorganisation of procurement processes.

The process involved the undermining of oversight mechanisms, and the manipulation of the public narrative in favour of those who sought to capture the state. Moreover, the subversion of the democratic process which the process of state capture entailed was not simply about extracting resources but was further geared towards securing future power and consequently shaping and gaining control of the political order (or significant parts of that order) in a manner that was necessarily opaque and intrinsically unconstitutional.

South Africa’s new Procurement Act attempts to address those corruption risks with new anti-corruption measures in Chapter 3, such as provisions on exclusion (Section 13) and debarment (Section 15), and a new Procurement Tribunal for bid challenges (Chapter 6). More broadly, as South Africa’s President Cyril Ramaphosa said, the new law seeks to eliminate “the problem identified by Chief Justice Zondo of fragmentation in procurement laws by creating a cohesive regulatory framework.”

Specifications: Preferences and International Trade

The issue of specifications — and more broadly, how bids will be assessed — raised collateral questions under South Africa’s new procurement law.

One important issue is how procurement preferences (such as those for small enterprises, and those based on race, gender or former military service) will be addressed. Procurement preferences have been a standard part of procurement systems around the world for centuries, as Professor Christopher McCrudden pointed out in his landmark work, Buying Social Justice. Chapter 4 of South Africa’s new procurement law shifts to new preference strategies (much like those in the U.S. federal system) based not on price advantages but rather on set-asides and mandatory subcontracting plans to favor preferenced groups.

Notably, while Chapter 4 includes strong preferences for certain groups, it has almost no provisions regarding facilitating strategies to encourage participation by small and disadvantaged businesses. These companion strategies to encourage participation by small and disadvantaged business are reflected, for example, in the European Union’s “Small Business Act” (inspired by a U.S. law of the same name).

A separate but related question, addressed by Professor Tunde Tatrai (Corvinus University of Budapest) at the conference, is how South Africa will integrate into international and regional trade agreements regarding procurement, such as the World Trade Organization’s Government Procurement Agreement. International trade agreements — for example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — have grown more accommodating of social preferences in covered procurement regimes. Even with its strong procurement preferences under the new law, therefore, South Africa may be able to join these international free-trade agreements in the coming years, and so increase access to its procurement markets for more international competition while opening opportunities abroad for South Africa’s exporters.

Conclusion

Although South Africa’s new Procurement Act contains some surprising gaps — as noted, the new law contains almost no details on what types of procurement methods are to be used, or on measures to facilitate small enterprises’ participation in procurement — complaining about gaps in the law may miss the broader point. As President Ramaphosa suggested, the law reflects a new direction in South Africa, a bridge away from the corruption that previously deeply tainted its procurement system. The recent conference at the National Research Foundation thus marked an important step forward in South Africa’s progress towards its future as a new nation.

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