South Africa’s public procurement system is not fit for purpose and lends itself to abuse and corruption.
This is according to law professor and African Procurement Law Unit director Geo Quinot.
He told Business Day TV that public procurement is the single biggest item on South Africa’s budget at around R1 trillion a year, making it a hotspot for corruption.
Procurement simply refers to the state buying the goods and services it needs to fulfil its function, he explained.
South Africa operates on a decentralised Public Finance Management System, of which procurement forms part.
This means that every public entity in the state runs its own finances, and the administrative head of that entity takes the final responsibility for spending the money allocated to it in a financial year.
However, Quinot said this system is not working. “It is simply that our system is no longer fit for purpose,” he said.
“It’s just not serving our particular purpose in South Africa. And there are many reasons for that. Part of it is simply that we don’t have the right kind of tools available to us that can fit the conditions under which those tools are to be implemented,” he said.
He used the example of the process for quotation, where a public entity must get a quotation from three suppliers and pick one to fulfil the necessary service.
While this process may seem simple, it is not applicable in every scenario, as many smaller towns in South Africa do not have three suppliers for every service.
This process could also lend itself to corruption, as a public entity could simply “invite their three friends” to send quotations.
“The public procurement system doesn’t talk to the economic reality that a lot of public entities face,” said Quinot.
“On the other hand, it’s not tight enough to control where there are people looking out to abuse the system.”
Quinot and Corruption Watch recently released a report that highlighted trends in deviations and contract expansions in the 2022/23 financial year.
In a nutshell, a deviation refers to a scenario where a public entity is prescribed to procure in a certain way and does not follow that prescription.
Quinot said the report found a massive increase – 250% – in the number of deviations.
“And I can tell you now, in most of those cases, it’s single-source. So they’re not putting out an invitation to tender. They’re simply going directly to the source,” he said.
However, the report also found that there was a massive decrease in the value of those deviations. The value in the last financial year was only around a third of what it was in the previous year.
“Now that tells us that we are seeing a big number of small-value procurements not going through the system,” he said.
“My take on that is that it’s not corruption; it’s not abuse. It’s the system not being fit for purpose. It shows that there’s a category of spend where our current rules are not working as they should, and therefore, we’re seeing these small amounts of deviations.”
However, when looking at expansions, Quinot said, “I think we should be worried”.
“An expansion is where you’ve got a contract, and rather than going out and getting a new contract, you just expand it – you make the pie bigger,” he explained.
He said they have seen the numbers of expansions stabilise over the past few years to between 650 to 700 contract variations reported each year.
However, the value of these contracts in the last financial year has skyrocketed.
In the previous financial year, it was about R88 billion spent by way of contract expansion. In the past financial year, the number was R157 billion.
Another worrying trend is that, when comparing the original value of the contract with its expanded value and finding the average, there is about a 97% average increase in contracts.
“This means, on average, that these contracts are doubled in value. So it means you’ve gone out to the market, you’ve asked for R1 million worth of goods, but in the end, you spend R2 million,” he explained.
“And for that second million, you’ve not gone out into the market; nobody’s competed for it. It’s just the same supplier, and that’s worrying.”
While this system can obviously be used for corruption, Quinot said it is also bad for the economy.
“Because now we’re not spreading government work over a wider field of suppliers. And in the economic climate that we’re in, that’s actually a very important part of keeping the economy going,” he explained.
“You can’t concentrate spend like that. You would much rather have it spent broadly by the government, spending across a broader spread of suppliers.”
To address South Africa’s ineffective system, Quinot suggested a new strategy to hold public entities accountable – linking spending with service delivery.
“And that’s where communities really become important because if a community is involved in their own entity, let’s take a municipality, then things like spending R100 million on a stadium and then when we go and look for the stadium, it’s just a piece of land – that would never happen.”