So far we’ve looked at the structure of municipalities, the laws that govern their management, the way they should handle finances, and the people who manage these tasks. In the last article in our series, we explain how procurement should work in a municipality.
Municipalities spend their revenue on a wide range of expenses such as the delivery of services and running the municipality effectively and efficiently. In some instances, municipalities lack the skills, knowledge and capacity required to deliver these necessary goods and services and in those cases, the municipality must procure them.
Examples of services that a municipality is required to provide but is likely to procure include the supply of potable water and bulk electricity, ensuring the disposal of waste water and sewage, and the building and maintenance of public roads. Section 217 of the Constitution requires that when any organ of state contracts for goods and services, it must do so in accordance with a system that is equitable, transparent, competitive and cost effective.
Vulnerable to corruption
Procurement is one of the areas that is open to far-reaching corruption. Between January 2012 and the end of January 2014 Corruption Watch received 465 reports related to procurement corruption. These are reports that have been confirmed to be corruption, and don’t include the many others submitted by concerned people which have been ruled out as corruption.
“A junior municipal official is taking bribes from consultants and contractors. His monthly earnings with a spaza shop that he currently runs amount to not more than 10 000, but he builds houses within a space of seven months costing to 50 000. He does this through the earnings from bribes,” alleged a reporter.
“Tender scandal at XXX water service were employees sell tenders for cash enrichment,” said another reporter. “One of the employee put his bother inlaw company to do services there so they can benefit .The same employee has a link between brits municipality and the hartebeesport municipality,His brother inlaw benefits from the tenders deals an they split the money ,the brother inlaw is a pplice man staying in a state property as an use state resource for thier business.”
Bribery, nepotism and falsifying invoices are just some of the ways in which corruption manifests in local government. In theory, the procurement process is subject to regulations that should make it transparent and cost-effective – but this is not always the case.
Supply chain management policy
The Municipal Finance Management Act (MFMA) and its regulations provide a framework for the procurement of goods and services by a municipality or a municipal entity. This section of the MFMA does not apply when a municipality contracts with another municipality for goods and services.
Section 111 of the MFMA requires each municipality to implement a supply chain management (SCM) policy that is in accordance with section 217 of the Constitution. The SCM policy of a municipality or municipal entity must:
- describe in sufficient detail the supply chain management system that is to be implemented by the municipality or municipal entity; and
- describe in sufficient detail effective systems for demand, acquisition, logistics, disposal, risk, and performance management.
At a local government level, contracting for goods and services can take place through various processes including verbal and written quotes, petty cash purchases, and competitive bidding.
Competitive bidding at local government level, as at provincial and national level, utilises the committee system, comprising the bid specification and the bid evaluation and bid adjudication committees. The municipal manager appoints the committee members. The MFMA prohibits municipal councillors from being a member of any committee that approves tenders, quotations, contracts or bids and from being an observer on such committees.
Section 113 of the MFMA allows a municipality to consider an uninvited bid outside normal bidding processes – but it may only do so within the prescribed rules. If a municipality approves a tender outside of regular processes, the accounting officer must inform the auditor-general and the provincial and national treasuries, in writing, of the reasons why it has deviated from the prescribed procedure. A municipal entity must also notify its parent municipality.
When it comes to procuring services of a construction and engineering nature, municipalities are, in addition to being bound by regular public procurement laws, also bound by the Construction Industry Development Board Act of 2000. The legislation prohibits contractors who are not registered with the Construction Industry Development Board and in possession of a valid registration certificate issued by the board, from undertaking any public sector engineering and construction works contracts that are awarded through a competitive tendering or quotation procedure.
Corruption in the supply chain
The MFMA regulations also require any SCM policy to provide measures to combat abuse and corruption in the supply chain management system. Amongst other things, the supply chain management policy must enable the accounting officer to check the Treasury’s database prior to awarding any contract, to ensure that bidders are registered.
It must also enable the accounting officer to reject the bid of any bidders who have been listed on the register for tender defaulters in terms of section 29 of the Prevention and Combating of Corrupt Activities Act 12 of 2004.
The regulations further require that a supply chain management policy of a municipality or municipal entity must stipulate that no person in the service of the state may receive a tender award.
The MFMA requires the municipal accounting officer to implement the SCM policy and take all reasonable steps to ensure that proper mechanisms are in place to minimise the likelihood of fraud, corruption, favouritism and unfair and irregular practices.
However, corrupt officials still find ways to circumvent the rules.
“The Official is stealing money through tender process of Catering the company thats gets the job is well known that he owns it and he was employed in January 2013 in the Office of the Speaker and it was from there given jobs on daily basis,” wrote a reporter.
“Mr XXX and Mr YYY (procurement officer) is corrupt,” revealed another reporter. “They were placing orders for goods such as clothing and caps and ect… and the orders was approved by Mr YYY…then the money was paid over to Mr XXX's company name . Where the goods was never delivered to City of Tshwane. what happened to the money I don't know but it was probably split between the 2 of them. there was allot of orders placed like this and money received with no goods delivered.”
The Preferential Procurement Policy Framework Act (the PPPFA) and its regulations apply to all organs of state, including national and provincial departments, and municipalities.
The PPPFA was enacted to give effect to section 217 (3) of the Constitution and is aimed at ensuring that organs of state such as municipalities, implement a policy and system where tenders are not awarded only on the lowest price, but on a prescribed point system where preference is given to historically disadvantaged South African citizens.