What began as a tentative pilot project to test the ‘open tendering’ concept in the South African public sector is now likely to become a permanent fixture, as the Gauteng provincial government (GPG) considers tabling legislation making the Open Tender System a necessary condition for procuring goods and services.
In an effort to tighten up public procurement, improve transparency and eliminate potential corruption gaps, the Open Tender System breaks the mould of the traditional behind-closed-doors decision-making process of the selection of bidders for projects, goods and services in South Africa’s richest province.
Gauteng Finance MEC Barbara Creecy tells Engineering News of plans to introduce the proposed legislation within the next year, with the intention of bedding down and hard-wiring the initiative into the province’s procurement system forthwith.
The move is in line with broader ambitions to safeguard the public purse, combat corruption and restore public confidence in Gauteng’s public procurement system, which has come under fire in recent years and has developed a reputation for favouring those with political influence.
“Entrepreneurs, innovators and business executives have told me that they do not bother anymore to bid for government work, citing as the reason that, in order to get a tender, you have to bribe your way into the corridors of power,” Gauteng Premier David Makhura says.
The pilot project initiative kicked off in 2014, with the GPG opening the tenders for, first, the Cedar road construction project and then the Gauteng banking services, to public scrutiny.
The system allows the public to observe the opening of the tender boxes and the imprinting of all contained documents; the appointment of external, independent probity auditors; and the public adjudication of the decision to award the bid to a service provider in a newly constructed facility at the Gauteng Finance Department’s Johannesburg headquarters.
“Initially, what we were just trying to show was that it was feasible in terms of the regulatory environment [and] in practical terms,” Creecy explains, adding that there were “quite a lot of naysayers.”
Since the pilot’s launch, around 72 projects, encompassing goods and services valued at an aggregate R10.4-billion, spanning five provincial departments, including the education, health, human settlements, infrastructure development and roads and transport departments, have been decided under the umbrella of the Open Tender System.
“It is not a theory, it is not a plan; it is something that we have already put into action,” she says.
In the 2015/16 financial year, the GPG spent, under the Open Tender System, around R25-billion on goods and services, of which, she points out, R19-billion, or 77%, went to black-owned companies, 20% to companies owned by women and 9.3% to youth-owned companies.
This, she says, dispels widespread concerns that the Open Tender process will empower only those already empowered and reinforce the marginalisation of those historically excluded from the mainstream of the economy.
Creecy believes, therefore, that, despite initial apprehension, the greater accountability in public procurement is “in no way” incompatible with the country’s or the GPG’s broad-based black economic-empowerment objectives.
This is evidenced by the increase in procurement from black-owned companies to 93% under the new process in the first six months of the current financial year.
There was also an improvement in total spend on women-owned and youth-owned enterprises, which amounted to 22.7% and 10.5% respectively.
Creecy says the Open Tender process also promotes small business growth, with R3.5-billion, or 13%, of the provincial first-quarter spend allocated for goods and services procured from township entrepreneurs.
“Public procurement is playing an important role in developing the basic capabilities of small companies, including township enterprises, to participate in and benefit from growth processes,” she explains.
Creecy notes a 25% improvement in the 2015/16 audit outcomes of Gauteng departments and agencies – all of which obtained unqualified audits and 60% of which were clean.
While she feels that irregular expenditure in the prior financial year was still too high, small improvements are being seen and this is the beginning of a “turnaround” in irregular expenditure.
“Officials from the Auditor-General’s office, as well as the Gauteng Audit Committee, have cited greater probity in supply chain processes as a major contributory factor, and have also affirmed the significant contribution the Open Tender System is making to improved audit outcomes in the departments that implemented it in the last financial year,” Creecy says.
The GPG is also seeing an improvement in the way in which the supply chains are operating, with supplier rotation now ensuring that, on average, nearly a third of the companies on the central supplier database are being used.
The tendering process also enables small business to learn about and grasp the key elements of the bidding process, which can allow the future participation of companies previously unaware of what it takes to ensure a winning bid.
“It opens the possibility for emerging suppliers to go and watch decisions around procurement and it’s very educational,” she tells Engineering News, adding that it teaches any potential suppliers how to put together a bid that is likely to succeed.
It is also likely that the adjudicating process can be made mobile and take place in the community impacted on by or hosting the service or project under review, revealing to the community the benefits of and tendering procedures related to proposed projects.
When the processes began, sceptics warned that the public opening of the bid adjudication committee processes would be mired in lawsuits. “But, quite the contrary, the transparent nature of the process has ensured that not one of the awards has been challenged in court,” Makhura avers.
“For those worried that transparency equals prolonging of bureaucratic red tape, we have matched our process to the 14 weeks required in a normal procurement process governed by the Public Finance Management Act. We add only seven days for the completion of the probity audit,” he adds.
Creecy is also undertaking meetings at local government level with finance mayoral council members to discuss the Open Tender System and offer support, with Tshwane, Ekurhuleni and the City of Johannesburg all indicating their intention to adopt the system for their own procurement.
The GPG’s target for the current financial year is for 60% of new procurement spend to move through the Open Tender procurement process, Creecy says.
This target will increase to 80% in the 2017/18 financial year and to 100% in the 2018/19 financial year.
Currently, Gauteng spends more than R47-billion a year overall on goods and services procurement, with Finance Minister Pravin Gordhan highlighting the “big business” element of procurement, as departments, municipalities and entities across government spend between R550-billion and R600-billion a year on the procurement of goods, services and works.
“Failure to purchase them cost effectively can put the achievement of key objectives and services of government at risk,” he says.
“Central to this is the decision to open the Bid Adjudication Committee process to public observation, as well as to publish the outcomes of each stage in the tendering process on the provincial Treasury website,” Gordhan adds, lauding the GPG’s open government efforts.
In March 2015, the GPG officially opened the adjudication of the Cedar road tender to the public to test the viability of improved transparency in the awarding of contracts.
In June this year, Gauteng Roads and Transport MEC Dr Ismail Vadi officially opened the newly constructed R88.5-million Cedar road, which was completed within budget and on time by bid winner Power Construction.
Twelve companies had bid for the Department of Transport-issued tender to upgrade Cedar road, with the tender box opened in public, bids registered and imprinted and the unveiling of prices, which ranged between R80-million and R100-million.
In January 2015, the second tender to fall under the Open Tender System’s jurisdiction was the five-year management contract of the multibillion-rand centralised banking services account of the province, the contract of which, under FNB, was, at the time, coming to an end.
The banking tender took a slightly different turn, as only four banks are eligible to manage the complex corporate and commercial banking requirements of the GPG, as directed by National Treasury provisions.
FNB retained the contract and is responsible for the management of the GPG’s complete centralised banking portfolio, which includes 232 bank accounts, about 151 petty cash books and eight trading accounts, in addition to the payment of the salaries of 200 000 officials and supplier payments of more than R3-billion a month.
While Creecy says it was expected there would be resistance, or concerns surrounding the adjustments of the banking tender procedure, particularly in light of the strict confidentiality procedures and pricing structures within the banking sector, FNB public-sector banking regional director Sivenathi Yekanye told Engineering News that there had been no apprehensions concerning the new system, indicating support for the “fair and transparent” approach.
FNB engages various provincial governments regularly, and was well versed in the ambitions of the GPG, with Creecy concisely outlining how the process would unfold and making all participating financial institutions “feel at ease” with transparency, accountability, compliance and integrity promotion.
“We believe that the process upholds and promotes transparency and accountability and it helps to build a positive image of government,” Yekanye says, adding that it should be mandatory for all government departments and local municipalities to use the Open Tender System.