S.Africa's BEE regulations could wreak high procurement costs - CNBC Africa

S.Africa's BEE regulations could wreak high procurement costs

Southern Africa

by Thabile Manala 0

The newly drafted BEE regulations will award tender contracts on a 50/50 weighting. PHOTO: Werksmans Attorneys

The newly drafted black economic empowerment (BEE) regulations intend on awarding tender contracts on the weight evaluation of 50 per cent price of goods or services and 50 per cent satisfactory representation of BEE.

 Previously the weightings were 90/10 or 80/20.

According to the Institute of Race Relation (IRR) these regulations could lead to inflated prices from BEE “tenderpreneurs” and compromise the affordability of the poor only to benefit the elite.

An example of how the proposed regulation would work is that a BEE bidder could charge 20 per cent more than another firm for say a bar of soap and still get the contract because of adequate representation.

Anthea Jeffery, who is head of policy research at the Institute for Race Relations, said the BEE price escalation had led to enormous waste in public procurement. She cited previous Finance Minister Pravin Gordhan who said the government was paying more for everything from pencils to building materials than a private business would.

This was reiterated in 2012 by Secretary General of the ANC Gwede Mantashe, when he said BEE companies must “stop using the State as their cash cow by providing poor quality goods at inflated prices”.

Jeffery further cited Mantashe’s sentiments that,“This thing of having a bottle of water that you can get for R7 procured by the government for R27 because you want to create a middle-class person who must have a business is not on. It must stop.”

Jeffery said that Preferential Procurement Policy Framework Act of 2000, a 90:10 formula has long applied to tenders worth more than R1m, in which 90 points are allocated on price and 10 points on BEE status.

In practice, this has meant that BEE contractors can charge 10 per cent more than others and still be awarded a contract.

She substantiated that the deductions from this is that once approved BEE weightings increase under the draft regulations, actual levels of BEE price escalation will in practice rise much higher.

According to the report, Jeffery said that BEE businessman charge these fees to “recoup the costs of mandatory kickbacks” to corrupt officials.

However, amid the corruption that costs South Africa R30 billion a year, the more pressing concern according to Jeffrey is the poor who depend on the government for many goods and services,the companies that are excluded from winning tenders at market-related prices, and the South African economy already battling with growth prospects.

“Also disregarded is the constitutional requirement that state procurement must be “fair, equitable, transparent, competitive, and cost-effective”, said Jeffrey.

She further projected that with growth rates already so low, this will push South Africa ever closer to a fiscal cliff where available tax revenues cannot cover social grants and public service wages – let alone spending on infrastructure, HIV medicines, and other essentials.

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