Revised Preferential Procurement Regulations, No April Fools Joke

With the revised Preferential Procurement Regulations in effect from the 1st of April 2017, it is important for us to deconstruct and give the effects that this will have for the industry.   The Regulations repeals the 2011 regulations in its entirety and should any company want to do business with any organ of state after 1 April, the 2017 Regulations will be applied. Any tender that was advertised before 1 April 2017, must be dealt with in terms of the 2011 regulations.

The thresholds have been increased:

The 80/20 and 90/10 preference point system’s thresholds have increased, in so far as a 20% preference points weighting will be applicable to the evaluation of procurement contracts with a rand value above R30 000.00, up to R50 million.  A 10% preference points weighting will be applicable to procurement contracts above R50 million, which is an substantial increase from the R1 million in the 2011 regulations.  This is to assist smaller companies to obtain government contracts.

Pre-qualification criteria can be introduced:

The purpose is to further allow government departments (and its entities) to introduce pre-qualification criteria in the tenders, to advance historically disadvantaged groups by limiting the competition to be only amongst the group’s members.

These criteria could limit tenders to entities with a particular B-BBEE status level, exempted micro enterprises or qualifying small businesses.  It can also restrict it to those who undertake to sub-contract a minimum specified percentage of the contract to businesses that are more than 51% black owned etc.

The Regulations are intended to give increased support from the state to small, medium and micro enterprises (SMMEs), with the Regulations stipulating that 30% of appropriate categories of state procurement should be for SMMEs and co-operatives, as well as township and rural enterprises.

These set-asides as described above, was not permitted under the 2011 regulations, and it is debatable if the act is wide enough to allow for these exclusionary practices.

Market related prices and the best tender:

The Regulations require the procuring authority to not accept the tender with the highest points, if the price that has been offered in the tender is not market related.  The authority may then negotiate with the highest scorer, a market-related price; failing that, with the second highest scorer and failing that with the third highest point earner.  Market-related however is not defined, and is therefore open to interpretation and discretion.  This can be problematic seen in the view of possible hidden agendas that these officials may have.

The procuring authority, according to the regulations must cancel the tender process if a market-related price is not agreed on following negotiations to the third highest point scorer.  The highest-point scorer will therefore not necessarily be the elected party.

A compulsory sub-contracting element:

Organs of state must, where feasible, impose a 30% subcontracting requirement in tender invitations for contracts in excess of R30 million.  This is for the purpose of advancing the same categories of EMEs, QSEs and co-operatives as provided for in the pre-qualification criteria.  The successful tenderer, in this instance, will be obliged to subcontract a minimum of 30% of the contract value to a supplier registered with National Treasury, for goods or services.

Extra reason for cancellation of tender process:

The 2011 Regulations made provision for the following three: goods and services no longer being required, non-availability of funds and no acceptable tenders received.  The 2017 Regulations added a fourth in the form of a material irregularity in the tender process.

The Remedies of the 2017 Regulations

The 2017 Regulations differ from the 2011 Regulations in the list of events that may give rise to the disqualification of tenderers.  The view is now narrower and doesn’t include defective performance under a government agreement.  The Regulations now allow for disqualification if false information is provided on BBBEE status, local production or any of the matters regulated by the 2017 Regulations.

These Regulations does require the organ of state to inform a tenderer prior to blacklisting or remedial action, to provide the tenderer the opportunity to make representations in this regard.

After this consideration, the organ of state may claim damages from the tenderer, if the contract has already been awarded.  A further penalty of up to 10% of the contract value where the tenderer has subcontracted a portion of the tender to another, without disclosure to the organ of state.  The procuring authority will then have to inform National Treasury in writing.

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