STRENGTHENING PROCUREMENT LIMPOPO PROCUREMENT STRATEGY 2030 PRESENTED TO

STRENGTHENING PROCUREMENT LIMPOPO PROCUREMENT STRATEGY 2030 PRESENTED TO THE CIGFARO LIMPOPO REGIONAL SCM SUMMIT 10 MARCH 2020

TABLE OF CONTENTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. PURPOSE BACKGROUND OBJECTIVES LEGISLATIVE FRAMEWORK SUB-CONTRACTING SET ASIDES IDENTIFICATION OF COMMODITIES PROVINCIAL STRATEGY TARGETS APPLICABILITY HOW TO GET THERE SPEND REPORTS (PFMA)

1. PURPOSE LPS 2030 was approved by EXCO in March 2017. The purpose of the strategy is to provide a framework for the procurement of goods, services and infrastructure projects by provincial organs of state to address the socio-economic challenges facing Limpopo province while stimulating Local Economic Development.

2. BACKGROUND • The development of the strategy was prompted by the need to stimulate local economic development given the challenges that the province faces with regard to high rate of unemployment, poverty levels, contribution towards GDP, active citizenry, high youth population (2 m) and woman population (2, 9 m). (Stats SA 2016 Q 4)

3. OBJECTIVES The Strategy aims to achieve the following two main objectives: v. Ensuring maximum retention of Provincial fiscal spend in the Province. v. To create an environment for local economic development aligned to Limpopo Development Plan.

• 4. LEGISLATIVE FRAMEWORK

4. 1. CONSTITUTION Section 217 – Procurement Section 217 subsection (1) When an organ of state… contracts for goods or services, it must do so in a system which is …fair, equitable, transparent, competitive and cost-effective. Section 217 subsection (2) Subsection (1) does not prevent the organ of state or institution referred to in that subsection from implementing a procurement policy providing for – (a) categories of preference in the allocation of contracts; and (b) the protection or advancement of persons, or categories of persons, disadvantaged in the previous administration by unfair discrimination. Section 217 subsection (3) National legislation must prescribe a framework within which the policy referred in subsection (2) may be implemented. Therefore the Constitution provides for equality before the law, redressing the imbalances of the past and preferential treatment of previously disadvantaged person when organs of state procure goods and services 2

4. 2. PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT ( Act No. 5 of 2000) • The PPPFA (Act No. 5 of 2000) was enacted to give effect to the constitutional requirement • The PPPFA introduced the 80/20 and 90/10 preference points system, in order balance the inequalities of the past. • The PPPFA regulations of 2001 gave organs of state to whom the Act applied the discretion to prefer targeted groups (i. e. allocate bonus points to certain categories of persons). Promoted fronting. • The PPPFA regulations of 2011 introduced the B-BBEE scorecard, which inhibited the targeting of certain groups, and instead focused on broad-based black economic empowerment. 8

4. 2. 2017 PPPFA REGULATIONS AIMS AND OBJECTIVES • The regulations aim to use public procurement as a lever to promote socio-economic transformation, empowerment of small enterprises, rural and township enterprises, designated groups and promotion of local industrial development.

REGULATIONS 2011 VIS 2017 • There at least four main changes in the PPRs, 2017 as compared to the 2011 regulations which can be summarized as follows: • a) Regulation 4 empowers institutions to use prequalification criteria for preferential procurement; this ensures advancement of categories of persons or categories of enterprises in a specific tender. Enterprises must meet a prequalification criterion to be evaluated further. Only enterprises who meet the prequalification criteria are evaluated further. • b) Regulation 6 and 7, the thresholds for application of the 80/20 preference point system has been increased from maximum R 1 million to maximum R 50 million, likewise the 90/10 preference point system will be used for evaluation and award of all tenders above R 50 million. c) Regulation 9 which provides for subcontracting as condition of tender. Institutions will be required to identify tenders with an estimated value above R 30 million that can be used for subcontracting to advance categories of persons or enterprises. d) Regulation 6(9) and 7(9) give Institutions power to negotiate a fair price with the preferred • •

5. SUB- CONTRACTING HOW TO ACHIEVE THE 30% PROCUREMENT FROM SMMES. v Institutions must plan properly their procurement, identify tenders that will be used to promote SMMEs, co-operatives, rural and township enterprises. Decide on the appropriate regulations to be used to achieve the desired outcome. Prequalification and sub-contracting are the sub-regulations that can be used to achieve this.

REGULATIONS 4 Prequalification criteria … – Prequalification criteria may be used in selected tenders to advance designated groups on the basis of B-BBEE Status Level of contributor, EME or QSE or on the basis of subcontracting with EMEs or QSEs which are 51% owned by either of the following: Blacks; Black Youth; Black Women; Black people with disabilities; Black people living in rural or underdeveloped areas or townships; cooperatives owned by Black people; Black people who are military veterans – Therefore the introduction of prequalification criteria will allow the advancement of these selected categories of people by limiting competition only amongst themselves. Well established companies will also be able to compete if they meet further requirements of subcontracting to these groups should they (established company) be successful. – This is in keeping with national legislation and the empowerment agenda of government. 12 12

REGULATION 4 CONTINUED… 3. The revised regulations require organs of state to identify tenders, where it is feasible, to sub-contract a minimum of 30% of the value of the contract for contracts above R 30 million. Ø The tenderer must sub-contract a minimum of 30% of the value of the contract to EMEs or QSEs or EMEs or QSEs which are 51% owned by either of the following categories: Blacks; Black Youth; Black Women; Black people with disabilities; Black people living in rural or underdeveloped areas or townships; cooperatives owned by Black people; Black people who are military veterans. Ø Acknowledging that in the main, the high value tender in the region of R 30 million and above tend to be awarded to established companies due to economies of scale and affordability, leaving out categories of aspiring businesses, the revised regulations requires all those with ability to deliver the required service to demonstrate the element of subcontracting to the categorised groups at a tendering stage. (Refer to regulation 9). 13 13

Regulation 3 The following provisions have been added to regulation 3: a) Determining whether pre-qualification criteria are applicable to the tender; and b) Determining whether compulsory sub-contracting is applicable to the tender c) Determining whether objective criteria are applicable to the tender as envisaged in regulation 11. d) If there is uncertainty regarding the estimated price and which preference point system will be applicable, then the tender documents should state that either the 80/20 or the 90/10 preference point system will apply and that the lowest acceptable tender will be used to determine the applicable preference point system. 14

Regulation 9: compulsory subcontracting § New Regulation aimed at empowering designated groups especially in sectors where there is a lack of transformation. § An organ of state must, in the case of selected tenders where it is feasible to sub-contract, apply compulsory sub-contracting to advance designated groups in contracts above R 30 million. § That organ of state must advertise such tender with a specific tendering condition that the successful tenderer must sub-contract a minimum of 30% of the value of the contract to§ (a) An EME or QSE; (i) An EME or QSE which is at least 51% Black Owned (ii) An EME or QSE which is at least 51% owned by black youth (iii) An EME or QSE which is at least 51% Black Women Owned (iv) An EME or QSE which is at least 51% owned by black people with disabilities 15

Regulation 9: compulsory subcontracting continued (v) An EME or QSE which is 51% owned by black people living in rural or underdeveloped areas and / or townships (vi) A Cooperative which is at least 51% owned by black people. (vii) An EME or QSE which is at least 51% owned by black people who are military veterans § The list of designated groups mentioned in sub-regulation (2)(i) – (vii) must be made available by the organ of state selected from amongst suppliers registered on the Central Supplier Database of the National Treasury. 16

Regulation 11: Award of contracts to tenderers not scoring highest points. § Regulation 7 in PPR 2011 § An additional sub-regulation has been added states that if an organ of state intends to use objective criteria in terms of Section 2(1)(f) of the Act, the organ of state must stipulate the objective criteria in the tender documents. 17

Reg 7 vis PPPFA Section 2 (1) (f) OBJECTIVE CRITERIA • • Section 2 subsection (1) An organ of state must determine its preferential procurement policy and implement it within the following framework: (d) the specific goals may include— (i) contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability; (ii) implementing the programmes of the Reconstruction and Development Programme as published in Government Gazzette No. 16085 dated 23 November 1994; e) any specific goal for which a point maybe awarded, must be clearly specified in the invitation to submit a tender; (f) the contract must be awarded to the tenderer who scores the highest points, unless objective criteria in addition to those contemplated in paragraphs (d) and (e) justify the award to another tenderer; and

Regulation 12: Subcontracting after award of tender. § The regulation provides that subcontracting after award of the contract must be subject to approval from the organ of state. § The regulation includes provisions which were provided for in Regulation 11 of the 2011 regulations related to 25% subcontracting and local production and content. 19

6. SET ASIDES • Do the new regulations now make provision for set-asides? – The regulations do not provide for set aside but make provision for prequalification on the basis of the criteria provided for in regulation 4. – Any supplier that meets the prequalification criteria is eligible to be evaluated further in terms of any evaluation criteria stipulated in the tender.

7. IDENTIFICATION OF COMMODITY ITEMS FRAMEWORK

7. 1. STRATEGIC COMMODITIES • These are high value goods which are critical to service delivery, have complex and/or rigid specifications and for which there are few qualified suppliers. The strategy should be to form long-term partnerships with suppliers (Period contracts that may not be less than three years, e. g. LTSM, medical equipment, and pharmaceuticals).

7. 2. LEVERAGE COMMODITIES • These are high value goods, which are market- or price-sensitive because of competition in the market; there are many suppliers and many product and service choices. The strategy should be to maximize government’s buying power and maintain market competition (Period contracts that may not be less than three years, e. g. security services, stationary, Office furniture, cleaning materials, etc. )

7. 3. ROUTINE COMMODITIES • These are small, low value individual transactions and everyday products and services. There are many suppliers and many alternative products. This is where quotations are used and the suppliers rotated to achieve the target as per strategy.

7. 4. BOTTLENECK COMMODITIES • These are lower value goods with complex specifications, that have a substantial impact on service delivery, have few qualified suppliers and not many alternative substitute products. The strategy in this case should be to manage the supply risk by ensuring continuity of supply through firm and longer-term contracts (e. g. Blood bank, Oxygen, and Medical waste)

8. LPS 2030 PROCUREMENT STRATEGY TARGETS Businesses Owned by TARGETS 2018 – 2021 - 2030 Black people 60% 65% Persons with Disabilities 7% 7% Black youth 20% 25% Black women 20% 25% Black owned Cooperatives 10% 20% Black military veterans 3% 5% SMMEs (EMEs & QSEs) 65% 70% Rural /Township businesses 5% 10% TARGETS

9. APPLICABILITY • DEPARTMENTS • PUBLIC ENTITIES • MUNICIPALITIES (STILL TO GET BUY INSYSTEMS AND REPORTING CHALLENGES)

10. HOW TO GET THERE PROCUREMENT PLANNING • During the process of developing Procurement plans the following needs to happen: – spend analysis – categorising procurement spend – commodity/category analysis – industry analysis – determining specifications, etc

11. TOP COMMODITY : SPEND ANALYSIS 1718 FY 29

11. MARCH 2018

11. MARCH 2019 Total Spend: R 10 084 bn Black people 0. 27 Persons with Disabilities Black youth 0. 76 Black women Black owned Cooperatives Black military veterans 0. 79 SMMEs (EMEs & QSEs) 0. 01 Rural /Township businesses 0. 17 0. 01 0. 29

PRESENTER CONTACT DETAILS • RAKUBU MB • rakubumb@treasury. Limpopo. gov. za • 015291 8715/ 0828050544

THANKS