Corruption Watch (CW), working with procurement law expert Professor Geo Quinot of Stellenbosch University, released Procurement Risk Trends 2023, the third such report, following the first two that were published in 2021 and 2022, respectively. These reports, which cover the period between 2016 and 2023, specifically focus on trends in public procurement deviations and contract expansions. Accompanying this information is an analysis of restricted suppliers.
The data in the 2023 edition, as with the earlier ones, is sourced from available reports submitted to National Treasury by all procuring organs of state, as well as the analysis made possible by CW’s online tool, Procurement Watch, which aggregates data from these individually published reports. This report further provides an update on the previous editions and identifies notable developments since the previous reporting period.
It is important to note that while deviations and contract expansions can raise red flags and indicate a lack of planning for procurement requirements, they do not necessarily indicate abuse of the public procurement system, as there could be valid reasons for such.
The report also includes a brief outline of rules governing public procurement and general mechanisms to address their abuse, with specific attention given to the rules that govern deviations from normal procurement procedures and expansion of contracts.
Reported deviations: 2016–2023
The most significant observation regarding the deviation data of the 2022/23 financial year is the material increase in the number of reported deviations in 2023. The data shows a massive increase of 247% from 2021 to 2023, representing a cause for serious concern when set against the backdrop of generally decreasing deviation numbers since 2017. It must be noted, however, that this analysis is purely based on reported data, and the increase in the deviation numbers may reflect increased reporting of deviations rather than an actual increase in deviations.
Interestingly, the report shows, while the number of reported deviations increased dramatically between 2021 and 2023, the value of deviations declined significantly. These values are based on the reported value of deviations, bearing in mind that in a notable number of instances the value of the deviation was not reported. The total reported value of procurement via deviations in 2021 was around R34-billion, while in 2022 it went down to R28-billion. The figure declined further in the 2022/23 financial year to around R11.9-billion. Thus, while the total number of reported deviations more than doubled from 2021 to 2023, the value of such deviations declined by two-thirds. It is not clear that this represents a trend.
Contract expansions reported to National Treasury: 2017–2023
While reported expansions have steadily declined since 2017, the data for the 2022/23 financial year shows a slowing down of the decline and a very slight increase in reported expansions. On current data, the number of reported expansions has seemingly stabilised since 2019 to between 650 and 700.
The total value of contract expansions in 2022/23 exceeded R157-billion, a figure based on the reported value of expansions, bearing in mind that in a notable number of instances (58) the value of the expansion was not reported. This value is almost double the total reported value of expansions in 2021 even though the number of reported expansions in 2022/23 (673) was only slightly more than in 2021 (644). The implication is that the extent of expansions was much higher in 2022/23 than previously. In fact, when compared to the original contract values to which the reported expansions relate, the overall percentage of expansion stood at 97%. Put differently, this means that on average these contracts were almost doubled in value based on expansions.
Public procurement is a highly regulated aspect of both public administration and economic activity in South Africa. There are detailed and often fragmented rules governing the invitation, adjudication, award, and implementation of contracts for the acquisition of goods and services by organs of state, collectively referred to as public procurement law. It is not incidental that public procurement law in South Africa has its explicit basis in the Constitution of the country.
Provision is made for public entities to deviate from established procurement procedures under limited circumstances. Under the current PFMA Treasury Regulations, national and provincial entities covered by those regulations may deviate when “it is impractical to invite competitive bids”, but policies must provide clear guidelines for the circumstances under which such deviation would be allowed as well as the alternative procurement procedure that must be followed in such deviation. In addition, the accounting officer or authority must approve the reasons for the deviation and all deviations must be reported to the relevant treasury, provincial or national, and the Auditor-General within 14 days of finalisation of the procurement.
Similarly, local government entities may deviate from prescribed procurement procedures in some specified circumstances, in terms of the Municipal SCM Regulations, including emergencies and where there is only one supplier that can provide the required goods or services.
The subject of expansions relates to unexpected conditions that may emerge during contract execution, necessitating some sort of contract adjustment. However, the risks accompanying contract variations are paramount when it comes to the expansion of contracts, in particular instances where the value of the contract is increased. The potential for abuse is increased, as much bigger contracts can be awarded to suppliers than was originally tendered for.
Consequently, the report states, National Treasury has issued an instruction to all national and provincial entities under the PFMA to monitor contract expansions. At local government level, amendments of contracts are procedurally even more restricted.
There are provisions in procurement law itself for remedies in case of abuse of the procurement system. The Preferential Procurement Regulations of 2022, under the PPPFA, provide for sanctions where a bidder has submitted false information to secure the tender.
The findings in this report provide more granular detail about specific contracts and suppliers, made possible using Procurement Watch.. In addition, the tool enables one to identify patterns and trends in public procurement practice in South Africa, focusing on the high-risk areas of deviations from prescribed procurement procedures and variations of contracts during implementation.
To access the report, click here.
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