The National Treasury has granted State-owned logistics agency Transnet exemption from complying with the Preferential Procurement Policy Framework Act (PPPFA) regulations.

This is an interim arrangement to ensure compliant business continuity at Transnet after Treasury advised that organs of State could apply for an exemption from the PPPFA regulations.

On February 16, 2022, the Constitutional Court confirmed the Supreme Court of Appeal (SCA) ruling in November 2020 that the 2017 Preferential Procurement Regulations were invalid. The SCA also ordered the effectiveness of its ruling to be suspended for 12 months from November 2, 2020, to allow the Minister time to introduce new regulations.

However, the Constitutional Court judgment does not pronounce on the issue of the timing effect of the invalidity of the regulations. This has created legal uncertainty in the public procurement environment and Finance Minister Enoch Godongwana has since approached the Constitutional Court on an urgent basis to seek clarity on this aspect of the judgment.

Treasury noted that requests for exemption should be limited to procurement requirements that cannot await the new regulations or the Constitutional Court clarification.

Transnet's exemption from the application of the provisions of the PPPFA is effective from March 11 until new preferential procurement regulations take effect, or the Constitutional Court confirms the effective date of the judgment.

Godongwana on March 10 published new draft regulations for public comment.

"Waiting for either of these decisions in order to proceed with procurement events at Transnet would have huge ramifications for the business and its ability to service its customers. As soon as the Regulations 2022 are promulgated, Transnet will ensure full compliance," it said.

"The PPPFA remains a valid Act of Parliament. It is only the regulations that have been declared invalid. However, the continued implementation of the Act is dependent on valid regulations being in place," Transnet said in a statement.

"The PPPFA requires that the threshold amounts to which the 80:20 and 90:10 preference points systems applied together with the price formula must be prescribed by regulations. Such regulations are necessary for the organs of State to implement their preferential policy. Without the thresholds and formula lawfully determined by the Minister, it becomes impossible to implement the preference scoring as envisaged in the Act."

Transnet is not able to use preference during this period of exemption, including the 80:20 and 90:10 preference points system.

Further, it is also unable to issue tenders with preferential procurement prequalification criteria, such as broad-based black economic empowerment (BBBEE) minimum-exempted microenterprises or qualifying small enterprises set-asides and minimum 30% subcontracting requirements. This would not be in compliance with Section 217(3) of the Constitution, the State-owned entity said.

"However, this situation is anticipated to be short-term pending either the new regulations or clarification of the Constitutional Court judgment. Transnet would ideally have preferred to apply preference during this period, but is left with no other options in order to meet immediate operational requirements and economic objectives," it emphasised.

"Transnet remains fully committed to transformation and the full participation of historically disadvantaged individuals in the economy and the operations of Transnet and other State-owned companies, as well as encouraging the localisation of production. This ruling and the absence of a new and better mechanism for ensuring the participation of black or transformed businesses is regrettable."

Transnet and the South African economy cannot afford to stop all procurement whilst waiting for the new regulations or an alternative ruling by the Constitutional Court in order to avoid our procurement being interdicted, it added.

"A better system for empowerment is needed going forward, as the current 80:20 and 90:10 preference point systems have, in practice, benefited very few black-owned companies. The BBBEE Act could be better utilised to drive transformation, not just within State-owned companies, but the whole economy.

"Transnet’s view remains that least-cost procurement militates against transformation and reindustrialisation, and the company will aggressively pursue all available mechanisms to effect transformation, empowerment and localisation as the legislative landscape shifts," it said.