There doesn't seem to be much press on the new PPPFA regulations, which I find quite strange because it's these regulations that Malema's cronies need to figure out so that they can carry on stealing from the taxpayer (oops did I just write that). There was an article in the Engineering News last week where Naren Bhojaram who is the CEO of consulting engineering company SSI laments
While these regulations are a great step forward in the bid to promote preferential tender award aims long held by the National Treasury and the Department of Trade and Industry, a refinement of the Act, specifically for consulting engineering services to include functionality as a component of the price and preference points in one assessment, would be a more positive advancement."
Further, the new regulations do not give preference for local consulting engineering groups. The regulations make provision for preference for local content but do not specifically include consulting services in terms of local preference.
There are two issues he raises here
-
That the functionality should be included in the price and preference points section (I think this is what he is saying)
-
The regulations might exclude local consulting services as part of local content
It's not clear what he means in the first point. Functionality has always been a component of the price section, and must be clearly specified and weighted. This is confirmed in section 4 of the regulations
4. (1) An organ of state must indicate in the invitation to submit a tender if that tender will be evaluated on functionality.
(2) The evaluation criteria for measuring functionality must be objective.
(3) When evaluating tenders on functionality, the
(a) evaluation criteria for measuring functionality;
(b) weight of each criterion;
(c) applicable values; and
(d) minimum qualifying score for functionality,
must be clearly specified in the invitation to submit a tender.
The second point is a lot more interesting. He's completely correct that local content is now expressly mentioned (a kind of anti-blackwashing). But, as Naren points out, local content refers back to imported content which is defined as
"imported content" means that portion of the tender price represented by the cost of components, parts or materials which have been or are still to be imported (whether by the supplier or its subcontractors) and which costs are inclusive of the costs abroad, plus freight and other direct importation costs, such as landing costs, dock dues, import duty, sales duty or other similar tax or duty at the South African port of entry;
This definition refers directly to tangibles, not intangibles like intellectual services. This is exacerbated by the definition of local content
"local content" means that portion of the tender price which is not included in the imported content, provided that local manufacture does take place
However I think that in spite of the tangibility of local and imported content, the PPPFA does contemplate services in its regulations and this falls within the definition of functionality
"functionality" means the measurement according to predetermined norms, as set out in the tender documents, of a service or commodity that is designed to be practical and useful, working or operating, taking into account, among other factors, the quality, reliability, viability and durability of a service and the technical capacity and ability of a tenderer
This is further enhanced by the definition of tender
"tender" means a written offer in a prescribed or stipulated form in response to an invitation by an organ of state for the provision of services, works or goods, through price quotations, advertised competitive tendering processes or proposals;
The question now is how do consulting services of any shape or form be stipulated as local content. It seems that the most effective way of doing this in terms of the regulations (I can't comment on how practical this is) would be to lobby the DTI to recognise that sector as being a designated sector in line with the national development and industrial policies for local production; viz
"designated sector" means a sector, sub-sector or industry that has been designated by the Department of Trade and Industry in line with national development and industrial policies for local production, where only locally produced services, works or goods or locally manufactured goods meet the stipulated minimum threshold for local production and content;
Once you've been designated as a designated sector you are specifically included in regulation 9 (paragraph 1)
An organ of state must, in the case of designated sectors, where in the award of tenders local production and content is of critical importance, advertise such tenders with a specific tendering condition that only locally produced goods, services or works or locally manufactured goods, with a stipulated minimum threshold for local production and content will be considered.
Even if you haven't managed to persuade the DTI that your sector should be a designated sector you aren't out in the cold. Section 9 (3) states
where there is no designated sector, an organ of state may include, as a specific tendering condition, that only locally produced services, works or goods or locally manufactured goods with a stipulated minimum threshold for local production and content, will be considered, on condition that such prescript and threshold are in accordance with the specific directives issued for this purpose by the National Treasury in consultation with the Department of Trade and Industry.
Furthermore the local capacity has to be determined at the outset in terms of regulation 3 of the PPPFA regulations
3. An organ of state must, prior to making an invitation for tenders
(c) determine whether the services, works or goods for which an invitation for tenders is to be made has been designated for local production and content in terms of regulation 9.
Naren does leave with a last thought that is terribly apt and is the sole reason why the BMF wanted a 70:30 or 60:40 split in the tender regulations.
"Consulting engineers compete with foreign companies that sometimes have the backing of their government to provide services on the African continent. This can result in unfair price competition because, even if the international company scores zero for preference, their subsidised lower price will give them the greater advantage in the overall score,"
And this comment gets to the bottom of section 217 of the constitution
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.
The government still wants a fair price for the goods and services it procures. This issue was raised by Thuli Madonsela in her "Against the Rules Too" report on the SAPS leases (page 15),
(g) The market rental rate for a building such as the Transnet building was determined by the DPW at R40.00 per m². The lease agreement signed between RPF and the DPW in respect of the Transnet building reflect a rental rate of R125.30 per m². The procurement of the lease was not in accordance with a system that is cost effective.
The BMF's lobby point would have been a complete violation of section 217 and was correctly ignored (along with almost everything else they say).
PPPFA course in October, 2011
By the way, we are arranging a one day course on the PPPFA and B-BBEE in October. The course will go through the legislation and finish up with a few interesting case studies. I'll keep you posted as to the details.
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