LEARNING UNIT 2

Ethical procurement in the public sector

LEARNING OBJECTIVES
After reading this learning unit, you should be able to:
• describe and explain the fundamental principles of procurement in the public
sector
• explain the legislation regulating procurement in the public sector
• identify and explain the procurement stakeholders in the public sector
• describe and explain the shortcomings in public sector procurement

2.1 INTRODUCTION
The function of public procurement is multi-faceted and pertains to a range of practices
that are related to activities taken by the government within the sphere of public policy
(Fourie & Malan 2020:3). According to the literature, public procurement involves a
government procuring the commodities and services it needs to perform its duties.
(Fourie & Malan 2020:3). Therefore, ethical procurement in the South African public
sector can be explained and understood in the context of the basic precepts of
procurement, namely, value for money, transparency, fairness, equity and
accountability. The discussion in this learning unit also covers matters relating to the
pertinent legislation in public sector procurement, particularly in South Africa. Multiple
role players should be capacitated, in terms of skills and knowledge, to drive
procurement in government and other resources required to discharge their duties
responsibly. Apart from the important roles played by procurement stakeholders, a
number of shortcomings in procurement are discussed below.

2.2 FUNDAMENTAL PRINCIPLES OF PROCUREMENT IN THE PUBLIC SECTOR

According to Rasebopye and Phume (2015:64), when state institutions procure goods
and services, they must ensure compliance with basic principles – fairness, equity,
transparency, competitiveness and cost-effectiveness. In this regard, some important
principles that merit serious consideration in the procurement of services are
discussed.

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2.2.1 Value for money
According to Fourie and Malan (2020:4), the only way to provide the taxpayer with
value for the money is to ensure that the procurement process is efficiently managed,
well planned, and skilfully carried out. Value for money suggests that public officials
should consider not only the lowest possible price when procuring services, but will
also pay attention to issues pertaining to the reliability and quality of the goods or
services concerned. Equally important, value for money denotes a competitive
environment in which all suppliers are free to compete with one another to provide
goods or services to public sector institutions (Rasebopye & Phume 2015:64).
According to Rasebopye and Phume (2015:64–65), value for money can be achieved
in the following ways:
• Provide specifications and clarity regarding what is expected of the suppliers
or service providers, so that they understand the requirements and provide
appropriate solutions.
• Negotiate for quality services at a reasonable cost and reduce the costs
associated with service delivery.
• Ensure that the supplier uses skilled and competent personnel to provide
quality services, cost-effectively.
• Conduct effective needs analysis to procure products in bulk, thereby
achieving cost savings and receiving discounts.
• Establish and maintain supplier relationships, particularly with key suppliers.

2.2.2 Transparent procurement (open and effective competition)

Public sector institutions can only establish equitable, transparent, competitive and
cost-effective systems if procedures, processes and policies are introduced and
applied accordingly. A transparent and competitive environment in the public sector is
characterised by allowing each supplier to submit proposals, without any
discrimination, especially when services are procured. This should be done without
disregarding the basic requirements of the task that has to be completed. In so doing,
public sector institutions will have a large pool of suppliers to choose from, that can
provide the best possible goods or services (Rasebopye & Phume 2015:65).

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2.2.3 Upholding fairness and ethics
Public officials have a duty to promote and uphold high ethical standards in supply
chain management processes, thereby nurturing a relationship of mutual trust and
respect with other stakeholders. Public sector officials need to adhere to and comply
with the National Treasury’s Code of Conduct (Rasebopye & Phume 2015:66; OECD
2020:11). Furthermore, to promote ethical standards and fairness in procurement
processes, the stakeholders involved in these processes must adhere to the following
requirements:
• They should take note of and reveal any possible conflict of interest.
• They should ensure the equitable treatment of suppliers.
• No one should use a position of authority to benefit inappropriately.
• The credibility and integrity of the procurement systems should not be
compromised by the receipt of unsolicited gifts.
• Public officials should use public property meticulously.
• All stakeholders should help accounting officers fight corrupt activities and
fraudulent practices in procurement.
(Source: Rasebopye & Phume 2015:66)

2.2.4 Promoting accountability

According to Rasebopye and Phume (2015:67), accounting officers in the public sector
institutions have to account for procurement matters and reporting. It is also important
for accounting officers to appoint audit teams to assist with financial matters, to prevent
irregularities and wasteful expenditures. In this regard, Rasebopye and Phume
(2015:68) emphasise that public sector institutions must ensure that the National
Treasury is given accurate and relevant information in relation to the following issues:
breach of procurement policies and procedures; noncompliance with the awarding of
contracts; and the management of property and inventory.

2.2.5 Equity
When contracting for goods or services, organs of state are required to conform to the
principles of fairness, equity, transparency, competitiveness and cost effectiveness,
as outlined in section 217(1) of the Constitution of the Republic of South Africa, 1996.
This part of the Constitution regulates the procurement of goods and services by state
organs in a comprehensive manner. Despite this, subsection (2) of section 217
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stipulates that the state is permitted to utilise procurement as a policy instrument in
order to safeguard or promote individuals or groups of individuals who have been
unfairly discriminated against. According to the provisions of section 217(3), legislation
must be established to provide a framework for the application of such policy. The
Preferential Procurement Policy Framework Act 5 of 2000 is the piece of legislation
that was successfully passed into law. It lays down the groundwork for the execution
of a preferred procurement strategy by providing the structure necessary for doing so.
The concept of equity refers to “the application and observance of government
policies, which are designed to advance persons or categories of persons
disadvantaged by unfair discrimination” (Rasebopye & Phume 2015:68). Equity is one
of the most important principles in procurement, particularly in the public sector,
because it is aimed at enhancing the economic participation of small, medium and
micro enterprises (SMMEs), as well as historically disadvantaged individuals (HDIs).
Moreover, equity seeks to provide economic opportunities for individuals, and small
and newly established businesses owned by historically disadvantaged groups, that
is, black people. Nevertheless, equity also indicates that all potential or prospective
suppliers of goods and services should have equal opportunities to compete in
providing goods or services to public sector institutions (Rasebopye & Phume
2015:68). This suggests that no supplier should be given an unfair advantage over
other potential suppliers.

2.3 POLICY FRAMEWORK REGULATING PROCUREMENT IN THE PUBLIC

SECTOR
According to Makube (2019:44), the process of public procurement is an essential
channel for the supply of public services and the operation of the government. Any
nation's economic expansion, societal advancement, and social welfare are
impossible to achieve without a government that operates effectively and provides the
necessary services. According to Makube (2019:44), the presence of large quantities
of money in public procurement renders the process susceptible to corruption. The
procurement processes in the South African public sector are regulated by various
pieces of legislation. The legislation that must be considered in the procurement
processes is discussed below.

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2.3.1 Constitution of the Republic of South Africa, 1996
Sections 213, 215, 216, 217 and 218 of the Constitution of the Republic of South
Africa, 1996, allow for the formation of the National Treasury; adherence to Treasury
norms and standards; and providing a framework for advancing transparency and
controlling expenditures in all three tiers of government.

217. (1) When an organ of state in the national, provincial or local sphere of
government, or any other institution identified in national legislation, contracts for
goods or services, it must do so in accordance with a system which is fair,
equitable, transparent, competitive and cost-effective.

(2) Subsection (1) does not prevent the organs of state or institutions referred to
in that subsection from implementing a procurement policy providing for —

(a) categories of preference in the allocation of contracts; and

(b) the protection or advancement of persons, or categories of persons,

disadvantaged by unfair discrimination.

(3) National legislation must prescribe a framework within which the policy
referred to in subsection (2) must be implemented.

218. (1) The national government, a provincial government or a municipality may

guarantee a loan only if the guarantee complies with any conditions set out in
national legislation.

(2) National legislation referred to in subsection (1) may be enacted only after
any recommendations of the Financial and Fiscal Commission have been
considered.

(3) Each year, every government must publish a report on the guarantees it has
granted.

2.3.2 Public Finance Management Act

The Public Finance Management Act 1 of 1999, includes provisions for the
administration of vendors that provide products and services to organisations that fall
within the purview of the public sector. The aforementioned piece of law aims to
promote sound financial management to enhance service delivery, which will, in turn,
ensure the most effective and efficient use of limited resources. (Rasebopye & Phume

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2015:69). From Rasebopye and Phume’s (2015:69) perspective, the provisions of the
PFMA should be interpreted in conjunction with section 16A of the Treasury
Regulations, which provides for procedures and processes that should be used by
public authorities during the purchase of goods and services..

2.3.3 Preferential Procurement Policy Framework Act 5 of 2005

The Preferential Procurement Policy Framework Act 5 of 2000, regulates the
procurement of goods and services in the public sector by prescribing formulas and
standards that should be applied by public sector institutions. Moreover, the above
legislation “provides for the procurement of threshold and percentages of preference
procurement within which the award of contracts can be made” (Rasebopye & Phume
2015:70). According to Practice Note No. 8 of 2007/08, for procurement of goods and
service not exceeding R500 000, including value-added tax (VAT), public institutions
must request at least three quotations. In contrast, procurements exceeding R500 000,
including VAT, should be subjected to a competitive bidding process. With regard to
the evaluation of bids and quotations, the Preferential Procurement Regulations of
2011 indicate that for procurement of goods and services below R1 000 000, the 80/20
preference point system should be applied. However, if the procurement of goods and
services exceed R1 000 000, the 90/10 preference point system should be applied
(Rasebopye & Phume 2015:70).

[Link] Quotation procedure

Rasebopye and Phume (2015:70) outline the quotation process as follows:
FOR TRANSACTIONS NOT EXCEEDING R2 000
The relevant line unit may obtain telephonic quotations and only request a
written quotation from the service provided recommended. The department
can reduce the petty cash threshold from R2 000 to R500, but may not exceed
R2 000.
FOR TRANSACTIONS EXCEEDING R2 000, BUT NOT OVER R30 000
The Demand Management Unit must obtain three or more written quotations
on receipt of a complete and duly signed request. Specifications are required,
but evaluations in terms of 80/20 principle.
FOR TRANSACTIONS EXCEEDING R30 000, BUT BELOW R500 000

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 “he Demand Management Unit must obtain three or more quotations on receipt
of a complete and duly signed request, and depending on the services or goods
required, the request may also be advertised to invite potential service
providers to submit their quotations. Specifications, including the evaluation
criteria, must be developed, and evaluation in terms of the 80/20 principle is
applied.

[Link] The bidding procedure

This process is relevant to acquiring goods and services over R500 000. The
Acquisition Management Unit ensures that, after receipt of approval, prospective
suppliers can be invited through a publication in the newspaper or government tender
bulletin. Equally important, the approved submissions must include specifications in
terms of service or goods required and the availability of funds for advertising in the
newspaper. In addition, a tender advertisement should categorically state whether the
80/20 or 90/10 preference point system will be applicable (Rasebopye & Phume
2015:71; Ambe 2016:283).

2.3.4 Broad-based Black Economic Empowerment Act 53 of 2003

The South African government introduced the Broad-based Black Economic
Empowerment Act 53 of 2003, which outlines a balanced scorecard that is used to
decide on the number of points that can be allocated to a supplier when evaluating
submitted quotations and bids during the procurement process (Rasebopye & Phume
2015:71). According to section 2 of the Broad-based Black Economic Empowerment
Act (Republic of South Africa 2003:4–5), the objective of the Act is to accelerate and
enable broad-based black economic empowerment by
• Promoting economic transformation to promote meaningful participation of
black people in the economy;
• Attaining an extensive change in the racial composition of ownership and
management configuration, including the skilled professions of existing and
new enterprises;
• Increasing the extent to which communities, workers, cooperatives, and other
collective enterprises own and manage existing and new enterprises and
increasing their access to economic activities, infrastructure and skills training;

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 • Increasing the extent to which black women own and manage existing and new
enterprises, and increasing their access to economic activities, infrastructure
and skills training;
• Promoting investment programmes that lead to broad-based and meaningful
participation in the economy by black people to achieve sustainable
development and general prosperity;
• Empowering rural and local communities by enabling access to economic
activities, infrastructure, ownership and skills; and
• Promoting access to finance for black economic empowerment.

Summary
In South Africa, the Broad-based Black Economic Empowerment Act establishes a
balanced scorecard to calculate supplier points throughout the procurement process,
through the examination of proposals and bids. Section 2 of the Broad-based Black
Economic Empowerment Act, expedites and facilitates broad-based black economic
empowerment by promoting economic transformation to include black people in the
economy; to increase the ownership and management of existing and new enterprises
by communities, workers, cooperatives, and other collective enterprises, as well as
their access to economic activities, infrastructure, and skills training; and increase the
ownership and management of existing and new enterprises by black women.

2.4 PROCUREMENT STAKEHOLDERS IN THE PUBLIC SECTOR

The primary procurement stakeholders or role players in the South African public
sector are the National Treasury, the provincial treasuries, accounting officers and bid
committees. For the purpose of this discussion, only these role players are dealt with.

2.4.1 National Treasury

The National Treasury was established by the South African government to control or
regulate the acquisition of goods and services in public sector institutions. Moreover,
Treasury is vested with powers to manage and ensure the effective usage of public
money (Rasebopye & Phume 2015:73). Rasebopye and Phume (2015:73) point out
that the South African National Treasury falls under the leadership of the Minister
(Minister of Finance), who is attached to the National Department of Finance, charged

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with the responsibility of overseeing financial and fiscal issues. In brief, the Minister of
Finance is the political head of the National Treasury, while the Director General of
Finance is the administrative head. According to Pauw, Van der Linde, Fourie and
Visser (2015:57), the Minister of Finance has the following responsibilities:
• Advance the national government’s fiscal policy framework.
• Coordinate the national government’s macroeconomic policy.
• Ensure proper coordination of intergovernmental financial and fiscal relations.
• Ensure that the budget preparation process is managed appropriately.
• Oversee the implementation of the annual national budget and adjustment
budgets.
• Facilitate the implementation of the Division of Revenue Act (DoRA).
• Ensure that the implementation of provincial budgets is monitored.
• Ensure transparent and effective management of revenue, expenditure,
liabilities and assets of government institutions, state-owned enterprises and
constitutional institutions.
• Undertake any other functions provided for in terms of the PFMA.

According to section 216 (1) of the Constitution, 1996, as amended (the Republic of
South Africa 1996:112), the National Treasury must take reasonable steps to promote
transparency and expenditure control in national, provincial and local government by
instituting generally recognised accounting practices, uniform expenditure
classifications and uniform treasury norms and standards. In so doing, the National
Treasury may take reasonable steps to prevent the transfer of funds to a government
institution, especially when such an institution has committed a serious material
breach of established financial control measures.

2.4.2 Provincial treasuries

According to Rasebopye and Phume (2015:74), the provincial treasuries are
established in terms of the PFMA. The Members of the Executive Council (MECs) are
the political heads of the provincial treasuries, who provide political oversight, while
the Provincial Head of Treasury renders the administrative role of the Department
(Pauw et al. 2015:57). The provincial treasuries are expected to prepare and manage
provincial budgets, thereby applying uniform treasury norms and standards
(Rasebopye & Phume 2015:74). In essence, the functions of the provincial treasuries
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should be consistent with the provisions of the National Treasury Regulations and the
PFMA. According to Pauw et al. (2015:57), the MEC for Finance in each province must
oversee the implementation of approved provincial budgets and strive to advance
transparent and effective management of government revenue, expenditure, liabilities
and assets of the provincial government and public entities.

2.4.3 Accounting officer

An accounting officer is generally a person who is a head of a public sector institution
– for instance, a director general (DG) in a government department or a chief executive
officer (CEO), in the case of a state-owned institution. In the context of public sector
institutions, an accounting officer is responsible for the overall performance of a
government institution; they must ensure that a public sector institution adheres to the
provisions of PFMA, and he or she may delegate specific powers and duties to
subordinates (Pauw et al. 2015:58).

The PFMA outlines the fundamental functions of accounting officers as follows

(Rasebopye & Phume 2015:74):
• Establish proper financial systems to maximise internal control of finances.
• Prevent overspending of approved budgets by government departments.
• Submit monthly and annual financial reports and statements to the Treasury
within a period of two months after the end of a financial year.
• Ensure that financial reports are published in accordance with the
prescribed format.

Failure by an accounting officer to comply with these provisions of the PFMA should
be dealt with rigorously, which includes a disciplinary hearing. Additionally, to avoid
neglecting some of the most important financial responsibilities, accounting officers
need to appoint chief financial officers (CFOs) to assist with matters relating to the
procurement of goods and services (Rasebopye & Phume 2015:74).

2.4.4 Bid committees

To ensure that the procurement of goods and services is undertaken in accordance
with a system that is deemed fair, equitable, transparent, competitive and cost-
effective, it is essential to establish bid committees to handle bidding processes. In
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this regard, three common bid committees in the South African public sector are bid
specification committees, bid evaluation committees and bid adjudication committees.

[Link] Bid specification committees

This type of committee is charged with the responsibility of drafting bid specifications.
In this regard, the specification committee should consider whether all the required
quality assurance standards have been satisfied in relation to the kind of goods
requested. Moreover, the specifications should be drafted impartially, to enable all
potential bidders to offer their goods and services. It is advisable to ensure that the
accounting officer or any other delegated person approves the specifications before
the advertisement is placed. In so doing, the evaluation criteria are likely to be
consistent with the requirements stated in the bid document (KwaZulu-Natal Provincial
Treasury 2005:9). According to the KwaZulu-Natal Provincial Treasury (2005:5), the
specification committee may consist of the following:
• Officials of a department, particularly the procurement section of the
department that requires goods or services.
• One or more suitably qualified specialist officials.
• An external consultant under the direction of the official or component
concerned.

[Link] Bid evaluation committees

The bid evaluation committee should consist of supply chain practitioners, including
knowledgeable and skilled officials from other relevant fields. Ideally, an evaluation
and adjudication committee should comprise a minimum of five members (KwaZulu-
Natal Provincial Treasury 2005:6).

The bid evaluation committee is responsible for evaluating the bids received, which
should include assessing the following (KwaZulu-Natal Provincial Treasury 2005:5–
6):
• The capability of the bidder to deliver in terms of the contact from a technical,
managerial and financial perspective;
• Whether a bidder gives value for money;
• Number of contracts awarded to a bidder or bidders in the preceding twelve
months;
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 • Bid specifications in terms of quality, functionality, dimensions, design,
customer support, guarantees, etc.;
• Allocation of preference points;
• Representivity in the constitution of the bidder and possible fronting;
• Success or failure to deliver goods or services in terms of the previous contracts
awarded;
• Validity of Tax Clearance Certificate issued by SARS;
• Compulsory registration on the Central Supplier Database.

Bids should be evaluated in terms of the preselected standards stated in the bid
documents. Such an evaluation must follow the preference point system, as outlined
in section 2 of the Preferential Procurement Policy Framework Act 5 of 2000. In this
regard, any item for which a point may be allocated must be clearly stated in the
invitation to submit a bid. The evaluation committee must evaluate or assess all bids
received, submit a report and make recommendations concerning the award of the
bids to the adjudication committee (KwaZulu-Natal Provincial Treasury 2005:6).

[Link] Bid adjudication committee

The bid adjudication committee must consist of at least one supply chain practitioner
and the chief financial officer as the committee chairperson. Equally important, the
committee should consist of a minimum of four members in senior positions (KwaZulu-
Natal Provincial Treasury 2005:6). Importantly, the bid adjudication committee must
take into account the recommendations or reports of the bid evaluation committee. On
the basis of any recommendation or report, a bid adjudication committee can make:
• A final award
• A recommendation to the accounting officer/authority to make a final award
• Make another recommendation to the accounting officer or authority how to
proceed with the relevant procurement

Moreover, the bid adjudication committee needs to ensure the following:

• All relevant bid documents have been submitted
• Disqualifications are justifiable, and that valid and accountable reasons or
motivations were given for the rejection of bids
• Scoring must be unbiased, consistent, calculated and applied appropriately
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 • Bidders’ declarations of interest must be considered
(Source: National Treasury 2006:2)

In addition, if a bid other than the one recommended by the bid evaluation committee
is approved by the bid adjudication committee, the accounting officer or senior
government official, delegated by the accounting officer (director general, chief
executive officer, head of the department), should be informed of such a decision.
After considering such reasons for deviations, the accounting officer or any other
delegated senior government official may accept or reject the decision of the bid
adjudication committee. In the case of the bid adjudication committee approving a
decision other than the one recommended by the bid adjudication committee, the
Auditor General, the provincial and the national treasury concerned must be informed
of the reasons for deviations from recommendations (National Treasury 2006:2).

2.5 SHORTCOMINGS IN PUBLIC SECTOR PROCUREMENT

Numerous shortcomings are associated with procurement in public sector institutions,
this is not an exhaustive list, some of which are discussed below.

2.5.1 Not purchasing supplies on time

Failure to procure goods and services on time could pose a major problem for any
public sector institution. Between 2015 and 2017, several media reports indicated that
most public hospitals (Polokwane Hospital and Mamelodi Hospital) in South Africa
were unable to cater for patients who were admitted, because of insufficient beds or
failure by the hospital to procure enough beds for patients. As a consequence, patients
had to sleep on the floor to receive medical treatment and care at these public
hospitals (Silaule 2017; Selaluke 2015).

2.5.2 Late payment to suppliers

The National Treasury (2011:2) notes that most government departments and entities
fail to pay the suppliers of goods and services within a period of thirty (30) days, as
per Treasury Regulation 8.2.3. The purpose of National Treasury Instruction Note 34,
as emphasised in the SCM Treasury Circular, is to inform Accounting Officers (AOs)
and Accounting Authorities (AAs) of departments, constitutional institutions, and public
entities, listed in Schedule 2 and 3 to the Public Finance Management Act (PFMA), of
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the procedure that must be followed to assist suppliers/creditors in the facilitation of
payment exceeding 30 days from the date of submission (The National Treasury,
2016:1). This data is designed to inform the Accounting Officer. This situation
negatively affects the cash-flow positions and sustainability of businesses, particularly
small businesses. For instance, the Minister of Justice and Constitutional
Development mentioned, in response to a parliamentary question, in Parliament that,
by 13 August 2012, more than 446 suppliers had not been paid within thirty (30) days
for invoices amounting to R34 523 103.26 (Department of Justice and Constitutional
Development 2012:2).

2.5.3 Poor specifications

Government departments or institutions must ensure that clear, fair and impartial
specifications are prepared when procuring goods and services. Specifications should
focus on the final product and not the processes involved in delivering the final product.
Unfortunately, in some government institutions, specifications are drafted so that they
automatically favour a specific supplier. Such an unethical procurement practice by
public officials should be discouraged, irrespective of whether it is intentional or
unintentional (Van der Walt 2014:300).

2.5.4 Absence of internal controls

The absence of appropriate internal controls leads to deviations from the supply chain
management processes and procedures, creating opportunities for corruption. In this
regard, involving different people at various stages of the procurement process is
essential. For instance, a person who puts out invitations for quotations must not
receive an award for the contracts for the same goods or services (Van der Walt
2014:301).

2.5.5 Lack of skills and capacity

According to Dlamini and Mulaudzi (2016), the perception in South Africa is that a lack
of available skills is the primary factor holding the nation back from realising its full
economic potential. For an economy to be competitive, it is necessary to have
procurement specialists with the necessary skills to establish and maintain integrated
plans. According to Dlamini and Mulaudzi (2016), there is a significant shortage of
such specialists, both in South Africa and throughout the world. Because of this, it is
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very necessary for people, working in procurement, to continue developing their
abilities. According to Dlamini and Mulaudzi (2016), activities at these types of
institutions, aimed at increasing procurement skills and institutional capacity, seem to
be falling behind. According to Dlamini and Mulaudzi (2016), public sector
organisations in South Africa suffer from a severe lack of qualified personnel in their
procurement departments. According to Dlamini and Mulaudzi (2016), in order for the
institution to prevent procurement inefficiencies and achieve a sustainable competitive
advantage, it is advised that effective skills and capacity development programmes,
such as education and training, be adopted.

2.5.6 Corruption
Although corruption is a worldwide issue, it is more pernicious in developing countries
(Munzhedzi 2016:1). It is also acknowledged that, in contrast to the developed world,
emerging governments seem to be more susceptible to the effects of corruption
(Munzhedzi 2016:1). One definition of corruption is "the offering or granting, directly or
indirectly to a public official or any other person, of any goods of monetary value, or
other benefit, such as a gift, favour, promise, or advantage for himself or herself or for
any other person or entity, in exchange for any acts or omissions in the performance
of his or her public functions” (Munzhedzi 2016:1). In other words, "corruption" refers
to the practise of offering or granting any benefit, such as a gift, favour, promise
(Munzhedzi 2016:1). This can be done either directly or indirectly. To put it another
way, corruption may be defined as the misuse of governmental power for the purpose
of obtaining a personal benefit (Munzhedzi 2016:1). According to Munzhedzi (2016:1),
the most prevalent forms of corruption include taking bribes, engaging in fraudulent
activities, and stealing from economic institutions. The fact that the supply of services
in emerging countries is dependent on the government may be one possible
explanation for this phenomenon, which occur in instances where there is an absence
of openness and responsibility in government operations (Munzhedzi 2016:1).

2.5.6 Lack of consequences

Poor governance is characterised by a lack of transparency, inadequate accountability
and inefficiency, and a lack of public involvement (Naher, Hoque, Hassan,
Balabanova, Adams & Ahmed 2020:2). Corruption is a typical result of poor

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governance (Naher et al. 2020:7). According to the findings of our investigation, the
most prevalent underlying causes of irregularities and informal practises are financial.
These underlying causes included low salaries and benefits, a lack of or inadequate
incentives, a lack of autonomy on the part of local authorities to hire and determine
remuneration, and a lack of accountability to local authorities on the part of doctors
(Naher et al. 2020:7). Corruption has a wide range of effects, including detrimental
effects on the accessibility, utilisation, and costs of services. Corruption practises are
connected with the abuse of existing resources, in resource-constrained contexts, and
an increased financial burden on the poorest (Naher et al. 2020:7). Corruption
practises also contribute to wasteful public spending (Naher et al. 2020:7). According
to Naher et al. (2020:7), corruption may raise the cost if a bribe is asked or an informal
payment is made in addition to the official payment. This, in turn, can diminish the
demand and lead to poorer outcomes. Among the other disadvantages is the inability
to provide timely and adequate services for individuals who are able to get it (Naher,
et al. 2020:7).

2.6 CONCLUSION
It is expected that public sector organisations would generate good returns from their
procurement operations. By acting in this manner, the concept of getting the most out
of one's money will be honoured. It is essential that these kinds of healthy returns are
not sporadic, but rather persistent. To prevent instances of corruption and
noncompliance with legislation or norms, the procurement process needs to be
marked by transparency and openness. In addition, it is imperative that each of the
several pieces of legislation that govern procurement in the public sector be followed
to the letter, at all times. In point of fact, the entities that play a part in the system, such
as the National Treasury, provincial treasuries, and accounting officers, are tasked
with ensuring that any violations of the law are dealt with in a harsh manner. Despite
this, the institutions that fall under the purview of the South African public sector are
faced with a variety of challenges in terms of procurement. These challenges include
the late payment of vendors and inadequate specifications. In the event that these and
other types of difficulties are not solved, the procurement process will continue to be
complicated.

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Activity 2.1
Based on the two case studies above, identify the various tendering stage
violations.

3. Case study 1: Unauthorised changes to terms of a bid

A government department advertised that it intends to lease an existing building for
two years. Potential bidders submitted their bids, some offering to construct new
buildings and others offering existing buildings. The advertisement noted the
requirement for a lettable area of 3 250 m2, plus 85 undercover parking bays. Members
of the bid evaluation committee and the bid adjudication committee disqualified four
bidders, who offered to construct new buildings, and recommended a supplier for a
two-year lease at an escalation rate of 6 per cent. The Accounting Officer signed the
lease agreement with the supplier. However, the agreement changed the conditions
of the tender: the period was changed from two to ten years, the escalation rate was
changed from 6 to 8 per cent, the lettable area was changed from 3 250 m 2 to 5 416
m2, and the condition that an existing building must be leased was changed to the
construction of a new building. The municipality approved the building plans.
(Source: Adapted from National Treasury (2015:18))

Case Study 2: Collusion in tendering to build World Cup stadiums

The 2010 FIFA World Cup was an opportunity for South Africa to invest in
infrastructure. However, all projects experienced time delays and cost overruns. This
prompted the National Treasury, affected municipalities and the Competition
Commission (CC) to investigate the increased construction and upgrading costs. The
enquiry took place in 2008. Among its findings were that budget estimates revised in
2006 were substantially higher than the initial 2005 estimates. Based on these
findings, in February 2009, the CC initiated a complaint, in terms of section 49B(1) of
the Competition Act, into alleged prohibited practices relating to collusion between a
number of major construction companies. Further investigations, in the same year,
showed that bid rigging was entrenched in the South African construction industry.

To bring the process to a close, the CC put in place the Construction Fast-Track
Settlement Process, which required the firms in question to apply for settlement by
disclosing all construction projects that were subject to collusive practices in return for

17
penalties below what the Commission would otherwise seek. Twenty-one firms applied
for leniency through the process and disclosed more than 130 projects; if all projects
had been included, the total might have been closer to 300, with a value of R47 billion.
Conditions attached to the settlement included an obligation on the companies not to
engage in the future in any prohibited or collusive conduct that would distort tender
processes, to take active steps within each company to promote compliance with the
Competition Act, and to undertake to cooperate fully with the CC until the Fast-Track
Settlement process was concluded.
(Source: Adapted from National Treasury (2015:19))

ACTIVITY 3.1
Discuss the consequences of ignoring the bidding process based on the case above.
Case study 3
Solar PV firm fined R200 000 for allegedly colluding in tenders

A Gauteng-based solar PV supplier and installer has agreed to pay a R200 000
administrative penalty after being accused of collusion in public tenders. The
Competition Commission, following an investigation, found that the firm, Pacific Solar,
had colluded with another service provider Nert Technologies, in preparing and pricing
their bids for tenders from the Council for Geoscience and The Department of Mineral
Resources and Energy (DMRE). The Commission's investigation was prompted by
separate complaints lodged by the Council for Geoscience, in October 2021, and the
DMRE, in May 2022.

"The Commission's investigation found that the firms assisted each other to prepare
and price their bids and that their conduct amounts to collusive tendering," the
Competition Tribunal said in a statement.

The Competition Tribunal adjudicates matters that are referred to it by the investigative
authority, the Competition Commission.

According to the Tribunal, Pacific Solar agreed to pay the penalty, but did not admit to
contravening the Competition Act.

18
The Commission has agreed to conclude the matter with a consent agreement, given
that Pacific Solar is a small business, which has not previously been found to have
broken competition rules. Secondly, Pacific Solar did not win the Council for
Geoscience's tender.

"While Pacific Solar was included in the panel of service providers in respect of the
DMRE tender, it was subsequently removed from the panel, and the DMRE stopped
providing the firm with any work," the Tribunal's statement indicated.

(Source: [Link]
allegedly-colluding-in-tenders-20230531)

SELF-EVALUATION QUESTIONS
• Describe and explain the fundamental principles of procurement in the public
sector.
• Explain the legislation regulating procurement in the public sector.
• Identify and explain the procurement stakeholders in the public sector.
• Describe and explain the shortcomings in public sector procurement.

4. REFERENCES

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