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REGULATIONS TO THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT 5 OF 2000 (“PPPFA”)

The PPPFA regulates the procurement policy and framework of organs of state. Its purpose is to enhance the participation of Historically Disadvantaged Individuals (HDIs) and small, medium and micro enterprises (SMMEs) in the public-sector procurement system. With the PPPFA being promulgated at the beginning of February 2000 it is by no means a novel piece of legislation. Nevertheless, on 20 January 2017, the Minister of Finance has, in terms of section 5 of the PPPFA, issued new regulations to take effect from 1 April 2017 (“2017 Regulations”).
 
Scope and Application of the 2017 Regulations:
 
The 2017 Regulations seeks to harmonise the B-BBEE legislation, with government procurement policy, under the broader auspices of economic transformation and empowerment, placing a particular emphasis on the use of locally produced goods, and the tendering company’s B-BBEE rating. The new regulations apply to organs of state, including but not limited to national or provincial departments in terms of the Public Finance Management Act 1 of 1999 (“PFMA”), municipalities, both houses of parliament and other entities falling under the definition of section 239 of the Constitution, 1996.

 

Changes occasioned by the 2017 Regulations:
 
Under the older 2011 regulations (“2011 Regulations”), two ratios were provided for organs of state to determine a tender award, in terms of which a portion of the awarded preference points would be determined by the tender price (in accordance with section 2 of the PPPFA) and the remaining portion to be allocated to “special goals”, typically tied to the tendering company’s B-BBEE contribution level. The applicable ratios in terms of the 2011 Regulations are as follows:

 

  1. For tenders between R30,000 to R1 million – A ratio of 80:20(i.e. 80/100 points awarded being based on the price of the bidder and 20/100 points awarded being based on the B-BBEE rating level); and
    .
  2. For tenders over R 1 million – A ratio of 90:10 is applied.

 

While the ratios in terms of the 2017 Regulations remain unchanged, the thresholds have been increased from R1 million to R50 million. However, the most significant changes flow from the new inclusion of pre-qualifying criteria in terms of regulation 4, and sub-contracting requirements in terms of regulation 9.

 

Regulation 4 of the 2017 Regulations affords organs of state with an election to apply one or more of the listed pre-qualification criteria as follows:
 
  • that a tendering company have a minimum B-BBEE contribution rating;
  • that a tendering company be an Exempted Micro Enterprise (EME) or Qualified Small Business Enterprise (QSE);
  • that a tendering company subcontract a minimum of 30% of the contract to an EME, QSE, or co-operatives which are 51% black owned, or black owned by certain designated groups (i.e. black youths, women, persons with disabilities, veterans,etc.).

 

Regulation 9 of the 2017 Regulations further requires that, where feasible, contracts above R30 million are to be subcontracted with the aim of advancing certain designated groups, and similar requirements to Regulation 4 would apply.

 

As the 2017 Regulations will only come into effect and apply to tenders on 1 April 2017, it has yet to be seen whether the introduction of pre-qualifying criteria will have an adverse impact on the diversity and quality of the tendering pool. Diligence must be exercised to ensure that the principles of fairness and transparency are upheld to ensure that the use of pre-qualification criteria are not abused. Nevertheless, from 1 April 2017, entities tendering to organs of state must ensure that they are compliant with the 2017 Regulations.

 

Prepared by:
Kshethra Naidoo | Associate | Dispute Resolution: Litigation & Arbitration
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)