DRAFT REVISED PREFERENTIAL PROCUREMENT REGULATIONSPROCUREMENT REGULATIONS

(26 MAY 2010)

NATIONAL TREASURY

Purpose

To provide an update of the draft Preferential ProcurementRegulations

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Current Preferential Procurement SystemProcurement System

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Preference Points System

Th PPPFA d it i t d R l ti i tThe PPPFA and its associated Regulations incorporatethe 80/20 and 90/10 preference point systems.

20 or 10 points make provision for the promotion of20 or 10 points make provision for the promotion ofequity ownership by HDIs or the specific RDP goals.

Allows the state to pay a maximum of 25% and 11 1%Allows the state to pay a maximum of 25% and 11.1%premiums respectively.

A maximum of 80 and 90 points represents priceA maximum of 80 and 90 points represents price.

Contracts awarded to the bidder who scores the highest total points (points for price added to points for RDPtotal points (points for price added to points for RDP goals).

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80 / 20 Preference Points System

Compulsory for procurement = > R30 000 - R500 000Compulsory for procurement R30 000 R500 000

May be used for <R30 000 (when obtaining quotations y ( g qfrom the database of suppliers for price quotations)

Maximum of 80 Points for Price

M i f 20 P i t f ti f HDI d /Maximum of 20 Points for promotion of HDIs and / or specific RDP goals

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90 / 10 Preference Points Systemy

Compulsory for Procurement > R500 000

Maximum of 90 Points for Price

M i f 10 P i f i f HDI d /Maximum of 10 Points for promotion of HDIs and / or Specific RDP goals

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Preference Points System

The B-BBEEA was enacted JanuaryThe B BBEEA was enacted January2004. Thus alignment of the PPPFA andB BBEEA became necessaryB-BBEEA became necessary.Some of the identified misalignmentsh t i (b t t li it d t )shortcomings were (but not limited to):

Inconsistency in the policyInconsistency in the policyapplicationTh d fi iti f HDI i tThe definition of HDI gave rise towide ranging fronting practices

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Process for Alignment

Draft Interim Revised Regulations were published in National Government Gazette and all Provincial G tt f bli t Cl i D t 14Gazettes for public comments – Closing Date 14 September 2009 – extended to 30 September 2009 due to public demand.

Total number of 156 written comments received. Latest comments received from NEDLAC duringLatest comments received from NEDLAC during December 2009.

During March 2010 joint comments were received from the dti and EDD – IPAP II aimed at promoting domestically produced goods and services.y p g

Comments have been evaluated and incorporated in consultation with the DTI and EDD

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in consultation with the DTI and EDD.

ALIGNMENT OF PPPFA WITH BBBEE ACT

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Amend Preferential Procurement Regulations to bebrought in line with the aims of the B-BBEE Act usingbrought in line with the aims of the B BBEE Act usingthe balance scorecard methodology as prescribed bythe B-BBEE Act and its Codes of Good Practice

Use definitions contained in the B-BBEE Act andCodes of practice eg. Black people instead of HDIs

Use Verification Certificates issued in terms of the B-BBEE Scorecard to calculate points out of 10 or 20

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Points to be awarded to a bidder based on his orPoints to be awarded to a bidder based on his or her B-BBEE status level

Eg Level 1 contributor would receive 20 pointsEg. Level 1 contributor would receive 20 pointswhilst level 4 contributor would receive 12 pointsout of a maximum of 20 points.

Level 1 contributor would receive 10 pointswhilst level 4 contributor would receive 5 points

f i f 10 iout of a maximum of 10 points.

Calculation of points to be based on the B-BBEEratings of a bidder as follows:

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B-BBEE Status Level of Number of Number of

Calculation of points for B-BBEE RATINGS

Contributor points (90/10 system)

points (80/20 system)

1 10 201 10 202 9 183 8 164 5 125 4 86 3 6

7 2 48 1 28 1 2

Non-compliant contributor 0 0

Threshold valuesThreshold values

80/20 preference points system

Compulsory for procurement = > R30 000 – R1m

90/10 preference points systemCompulsory for Procurement

R1> R1m

(Increase from R500 000 in the current regulations to R1 million (strengthens the contribution towards the development of SMMEs)

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• Local Content / ManufacturingComments insisted that revised regulations must provide for the promotion of local manufacture and job creation opportunities.opportunities.

Paragraph 9 (1) of the draft Regulations empowers the dti to designate specific industries where tenders should prescribe th t l l ll f t d d t ill b id dthat only locally manufactured products will be considered. National Treasury will issue relevant instructions and guidelines.

Where the dti is yet to designate an industry, a specific tendering condition may be prescribed that only locally manufactured products with a prescribed minimum threshold for local content will be consideredfor local content will be considered.

In such cases a two-stage bidding process may be followed whereby final terms and conditions will be negotiated with y gpreferred bidders.

DTI commenced with process to determine measures to stimulate local manufacturing / content within certain

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stimulate local manufacturing / content within certain industries – pharmaceutical, buses by municipalities and clothing.

• Issuance of B-BBEE Rating C tifi tCertificates

Currently there are only 30 accredited VAs. In some provinces there are no accredited VAs.

During November 2008 SARS indicated that there are 82 076 enterprises with annual turnover in excess of R5 million –needing rating on an annual basis.

To supplement the number of VAs – dti has embarked on recognizing regulated professional bodies such as registered auditors to also assess B-BBEE status of enterprisesauditors to also assess B BBEE status of enterprises.(Paragraph 10 of draft regulations has been amended to accommodate this provision.)

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S l d L tti f A t• Sale and Letting of Assets

Draft regulations made sale and letting of assets subject to preference point system as detailed in the PPPFAPPPFA.Some comments indicated that such provision is not in accordance with the prescripts of the Act as the Act only deals with procurement of goods and services.o y dea s t p ocu e e t o goods a d se cesThis view was endorsed by legal opinion and the relevant provisions have been deleted.Measures for proper control of sale and letting of p p gassets will be initiated by means of prescripts issued in terms of the PFMA and MFMA.

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• Sub-Contractingg

Paragraph 12 of the amended draft regulations allows sub-contracting in excess of 25% in cases where sub contractors are wholly black ownedwhere sub-contractors are wholly black owned and have the capability and ability to execute the sub-contract.

This accommodates the construction industry where 90% of work is executed by sub-contractors.

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• Applicabilitypp y

Th t l ti tThe current regulations are not applicable to Schedule 2, 3b and 3d public entities.pGiven the ongoing media speculation of large scale SCM related fraud and corruption at these entities the draftcorruption at these entities, the draft regulations makes these entities subject to the revised regulations.The Preferential Procurement Regulations will thus be extended to all organs of state for uniformity purposesorgans of state for uniformity purposes.

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DiscussionDiscussion

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