“Current Trends in public procurement in KZN”

Kwa-Zulu Natal Procurement Indaba

13-14 August 2015

Adv Siza Mthethwa

Contents

• Mandate and Strategic Objectives • Evolution of SCM in the Public Sector • Critical SCM issues • Possible solutions • Targeted interventions • Previous Spend Trends • Recent Spend Patterns • Current Economic Trends • Existing Public Procurement Strategies • Barriers to Economic Transformation • Recommendations • Conclusion

Mandate and current Strategic Objectives of the Provincial SCM Unit

Broad Mandate

• The Provincial SCM Unit is required to establish and maintain a Strategic link between Financial Management reforms, procurement processes and targeted economic transformation.

Strategic Objectives

• Support and monitor adherence of departments, public entities and Municipalities to SCM prescripts.

• Develop cost reduction strategies for provincial departments and Municipalities.

• Provide a supplier monitoring mechanism for the Province to ensure that Supplier Information is reliable and easier reporting is facilitated.

4

Evolution of SCM in the Public Sector

Critical SCM Issues

• Irregular Expenditure as a result of non compliance with SCM Processes

• High number of deviations due to lack of planning

• Poor Planning

• Poor spend on infrastructure grants, thus leading to deviant practices in SCM in attempt to speed up the processes

• Almost non-existent Contract Management (not even contract registers in place)

• Inadequate number of period contracts

• Poor level of skill of SCM officials

• Limited targeted procurement

Possible Solutions

• Predominantly guided by the establishment of the Office of the Chief Procurement Officer at National Treasury: – Extensive legislative reforms

– Further standardisation of bidding documents

– Strategic Procurement

– Conducting Spend Analyses (enhance understanding of the environment)

• The Provincial SCM Unit seeks to augment the national developments by embarking on a number of special interventions to deal with province-specific challenges.

o Contract Management • Phased-in approach that includes compiling of contracts registers; then the next

phase of assistance will be the conducting of reviews for existing contracts.

o E-Procurement Tool • Automation of the SCM process not only to create efficiency but also create a

system that will generate an audit trail. It will be integrated with the existing suppliers’ database.

o Capacity Building • National Treasury, in partnership with the Chartered Institute of Purchasing and

Supply (CIPS) are creating targeted public sector SCM qualifications

o Transversal / Period term contracts • Frequently procured goods will be on contract to alleviate the workload on SCM

officials in Departments and also enhance transparency and promote empowerment.

Targeted Interventions: Special Projects

Previous Spend Trends

o In 2007/2008, Spend analysis demonstrated that 93% of the suppliers registered on the Suppliers database shared 20% of the Province’s procurement spend. Therefore 7% shared 80% of the procurement spend.(www.ilo.com)

-

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

5% of Total Budget 15% of Total Budget 80% of Total Budget

Number of Suppliers per Budget % Threshold Category 2005/06, 2006/07 & 2007/08

Number of Suppliers per Budget %Threshold Category 2005/2006

Number of Suppliers per Budget %Threshold Category 2006/2007

Number of Suppliers per Budget %Threshold Category 2007/2008

Recent Spend Patterns

• Similarly if we were to examine the spend per race group as at the 2013/2014 financial year, one would note that the previously disadvantaged groups are not enjoying a major percentage of the spend.

30%

1% 0%

33%

2%

34%

2013/2014 Expenditure

African

Asian

Coloured

Indian

Other

White

Current Economic Trends

• As at May 2015, the following graph demonstrates the performance of the Top 50 suppliers in the Province who receive almost 50% of the estimated R 24 billion allocated to Goods and Services. (Provincial Treasury 2015)

R 0

R 5 000 000 000

R 10 000 000 000

R 15 000 000 000

R 20 000 000 000

R 25 000 000 000

R 30 000 000 000

12014/2015

Top 50 Suppliers

Total Spend Top 50

Total Budget

Existing Public Procurement Strategies

• In KZN, the Department of Education recorded contracts of R1.8billionin the 2011/12 financial year that were awarded to emerging contractors as part of its NSNP and LTSM initiative and infrastructure projects.

• The Department of Transport has databases for contractors that are part of the Vukuzakhe development . Once again, designed as poverty alleviation programmes and therefore do not comply with SCM prescripts.

Barriers and Conflicts to Economic Transformation

• Legal and Policy Frameworks (prohibition of set asides)

• No Link between business stakeholders and procurement drivers.

• Lack of a strategic approach to targeted procurement.

• Limited understanding of government spend and associated industries.

Recommendations

• Policy Frameworks to be developed to implement sustainable work opportunities for social enterprises as part of local economic development programme.

• NT should conduct a thorough review of the SCM Legal and Policy Frameworks to incorporate an exemptions for :

(i) Prohibiting set asides for procurement that have a social impact, and

(ii) competitive bidding processes for procurement that has a social impact.

• Unique Policy framework for emerging enterprises that simplify procurement processes.

(Potential Measures that can be taken to use Public Procurement to Stimulate the Social Economy in South Africa – Review of Legal and Policy Framework, ILO and DEDT, 2013)

Recommendations

• Spend analysis should be conducted to determine industries for public procurement opportunities, such as,

(i) catering, school nutrition (ii) recycling (iii) construction (iv) education/skills development (v) gardening (vi) community services (vii) waste management (viii) agriculture (ix) health care (x) security (xi) road maintenance • A separate Database for emerging enterprises, which allows for pre-approval and

registration.

(Potential Measures that can be taken to use Public Procurement to Stimulate the Social Economy in South Africa – Review of Legal and Policy Framework, ILO and DEDT, 2013)

Recommendations

• Strategic Sourcing, whereby Provincial Treasury will facilitate transversal contracts for commodities and services offered by emerging service providers. (TR 16A6.5 and TR 16A6.6)

• Training to be provided to SCM practitioners to facilitate such initiatives.

• Monitoring and evaluation to ensure targets are achieved with respect to each participating institution to ensure sustainability of emerging businesses, service delivery and compliance.

• A reporting tool to be designed to report on achievements.

(Potential Measures that can be taken to use Public Procurement to Stimulate the Social Economy in South Africa – Review of Legal and Policy Framework, ILO and DEDT, 2013)

Conclusion

There is a clear need to identify strategies as recommended herein that balance the interests of service delivery, governance and economic empowerment in such a way that they serve to equally complement the other. Great is our task at hand!!

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THANK YOU!