Public procurement management has been a major headache for the national finance department for a long time, and it's doubtless a welcome source of relief to many to know that systems are being re-established that will save government money and protect the interest of taxpayers. The Office of the Chief Procurement Officer (OCPO), which is part of Treasury, has developed a review of the system that will be implemented over the next five years.
In his mid-term budget policy statement in October last year, finance minister Nhlanhla Nene had said that the policy review would be available to the public in November, but the OCPO only released it earlier this month.
“Back [in 2004] government overhauled the supply chain management framework to decentralise procurement decisions to departments (national and provincial), municipalities and public entities,” Treasury said in a statement announcing the review. “The review is a culmination of the work done by the OCPO since its inception and the consultations it has had with various stakeholders.”
Money not well spent
Government spent over R500-billion on goods and services and construction works during the 2013/14 financial year. Managed well, this money could have benefitted millions by way of services delivered efficiently and adequately. There is no doubt that a part of the expenditure was irregular, as cited by auditor-general Kimi Makwetu in his audit report of the same period.
When he first shared the idea of introducing a central procurement office in his 2013 budget speech, Nene’s predecessor Pravin Gordhan expressed concern that the procurement systems across government levels vary in nature, and good governance was therefore not always observed. “…procurement transactions take place at too many localities and the contracts are short term,” said Gordhan. “Consequently there are hundreds of thousands of transactions from a multitude of centres.”
Because of this, he said, tracking down transactions was becoming a huge task. “While our ablest civil servants have had great difficulty in optimising procurement, it has yielded rich pickings for those who seek to exploit it. There are also too many people who have a stake in keeping the system the way it is.”
In Makwetu’s report, irregular expenditure costs stood at R62.7-billion, owing partly to government departments and entities not paying sufficient attention to procurement legislation. “Such expenditure does not necessarily mean that money was wasted or that fraud was committed, but is an indicator that legislation is not being adhered to, including legislation aimed at ensuring that procurement processes are competitive and fair,” said the auditor-general. Of that amount, he noted, R29-billion was incurred by one entity the previous year, but only identified in the 2013/14 audit year.
Flaws in the system
Some of the observations made by the OCPO during its development of the review were:
- Those working in the system do not understand the strategic importance of supply chain management, specifically the economic and social power of the decisions they make;
- There is lack of experience or under-skilled officials;
- There is high staff turnover and a lack of motivation;
- There may also be a lack of suitable equipment or information;
- The roles and responsibilities of technical staff and political office bearers are not clearly defined, but even when they are, the separation of responsibilities is not observed;
- There are few if any consequences for those who, despite support and encouragement, fail to perform at the required level;
- Policies and regulations are often confusing and cumbersome;
- There is also the challenge of finding the best balance between:
- a) the use of public procurement as a means of development and transformation, and
- b) the buying of goods and services at the best price, in the right qualities, at the right time, and in the right place.
How will the OCPO’s intervention fix all this?
Some of the priorities for the office include the removal of what it deems unnecessary steps in the supply chain management processes and establishing a centralised database of suppliers to government.
“This will significantly reduce the administrative burden within the system, as the mandatory administrative documents will only need to be submitted once in a pre-determined period,” read the statement from OCPO.
The office also wishes to create a culture of co-operation between suppliers and the public sector. “Accounting officers and authorities will be expected to report on a range of information including procurement plans, tenders to be advertised, tenders awarded, supplier company information, the value of each award and progress in implementing tenders.”
To maximise inclusiveness, the OCPO will establish an interactive website, which will house all supply chain management information for suppliers and public sector institutions. The website will be an important interactive tool that will allow for easy interaction between suppliers, public institutions and civil society.
Over the next three years, the OCPO will prioritise ways to economise on services offered in the following sectors: banking services; ICT infrastructure; professional services and consultants; security services; hospitality services, stationery for schools; health research and technology services; leasing and accommodation; and telecommunications services.
The implications for government in procuring these services currently are:
- The four major banks provide banking services to over 660 government entities at a high cost. The OCPO is currently researching ways to centralise this service;
- ICT infrastructure and services cost government R10-billion a year;
- The OCPO puts the cost of consultants at R12-billion a year;
- Security services cost R3.5-billion annually on highly fragmented security related services;
- Air travel and hotel accommodation takes R5-billion annually from the budget;
- The school textbooks and stationery field is still being studied by the OCPO, which hopes to develop a strategic sourcing methodology by January 2016;
- Research is also being conducted to identify opportunities in the health care equipment industry;
- Leasing and accommodation is the responsibility of the Department of Public Works, which manages the property portfolio. The newly established State Property Management Agency is tasked with developing a strategy to manage government’s entire property portfolio;
- Telecommunications services cost government R2.4-billion annually, while it spends R800-million on mobile services.
By developing a transversal contracting system for all government levels to purchase goods and services from a central list of approved suppliers, the OCPO hopes to achieve an efficient public procurement system that ensures value for money. Suppliers who find their details on the central list would have been vetted for cost and quality.
“The OCPO manages such a list, currently made up of 37 contracts covering more than 8 000 line items with an estimated annual value of over R16-billion,” read the statement.