A guide to procurement

Procurement refers to the process where the government buys goods and services using public money. Public money is money the government raises from the general public through taxes. For example, when the government buys textbooks, or pays for the building of a new school, a procurement process must be followed.

Procurement is necessary to deliver goods and service where government does not have the capacity and competencies to deliver. Procurement is essential for ensuring that government officials, who spend public money on behalf of the public, do so in a way that is in our collective best interests.

Every organ of state must follow procurement processes. The PFMA and MFMA outline who these organs of state are. They include national departments, provincial departments, public entities (including state-owned entities), municipalities and municipal entities.

The Constitution sets out five basic principles which MUST be followed where any public money is spent. The underpinning requirements for procurement are set out in section 217 of the Constitution.Every contract for goods or services, by an organ of state, in any sphere of government must be fair, equitable, transparent, competitive and cost-effective.

• Over time the courts have provided clarity on what is expected from organs of state government departments in relation to these principles. The requirement that the system be fair and equitable relates largely to the process, for example, there should be no differences in the information provided to bidders and no bias on the part of the persons adjudicating the bid. 
• The requirement for the procurement process to be carried out in a transparent manner promotes openness and accountability and also requires that reasons for an award be communicated to affected parties. 
• Public Procurement needs to be cost effective. This requires a department to seek to achieve value for money. 
• Finally, procurement must be competitive - unless procurement is done in a situation of emergency, or a circumstance where only one supplier exists, every procurement must include some level of competitiveness to ensure prices are as low as possible.

Before delving into the details around procurement, it is helpful to understand that there are different kinds of procurement processes and transactions. These include:

• RFQ’s - Requests for Quotations - deal with procurements which have total transaction value below a threshold – i.e. lower value transactions. 
• RFP’s - Requests for Proposals - deal with procurements which have total transaction value above a threshold - i.e. higher value transactions. 
• Transversal procurement/contract – a collective procurement by multiple departments. This procurement process is coordinated by the Office of the Chief Procurement Officer. 
• In very particular circumstances, procuring entities may also use limited/closed bidding, or may receive unsolicited bid proposals.

• At the moment, the thresholds are: R500 000 for all organs of state other than municipalities. The threshold for municipalities is R200 000. 
• These thresholds are subject to change from time to time. 
• Where the value of the good or service being procured is below a monetary threshold, a procuring entity may ask a number of suppliers to provide a quotation for the good/service, instead of going through the full tender process. 
• The request to suppliers is set out in an RFQ document.

• The RFP will ask for information from bidders on their technical knowledge, the quality of their product or service and their experience in the field.
• The responses will be submitted in a proposal manner, outlining the technical competencies, background experience, etc. 
• If the value of the transaction is above the monetary threshold, procuring entities have no option but to go through a fully competitive tender process - bids must be advertised for competitive bidding.
• Sometimes the RFP process may be utilised to establish a panel of service providers, wherein the bidders will be evaluated for functionality and the compliance requirements, excluding pricing;

When the organ of state accesses or procures from the panel, all service providers on the panel will only be asked to provide a quotation for their services, because the bidders have evaluated for functionality for inclusion to the panel.

• All procurement must comply with the 5 constitutional principles BUT
• The more public money is at stake, the more strict are the requirements to ensure that procurement is competitive.
• For transactions below a threshold value, an RFQ may be used. However, for transactions of a value above a threshold, an RFP and full tender process must be used. 

This occurs when a procuring entity procures a commodity in bulk at discounted rates, on behalf of multiple departments. The Office of the Chief Procurement Officer manages close to 50 Transversal Contracts on behalf of government. These range from surgical gloves, tyres, maintenance of government vehicles, courier services etc.

• This occurs were a selected set of potential service providers are invited to bid - where only a few service providers exist that have the ability to provide a particular service.
• Sole supplier – only one supplier can perform the function
• Single source appointment – continuation of service such as maintenance to equipment that can only be serviced with branded parts.

• This is where innovation plays a role.  Government may have a challenge and a supplier does extensive research and develops a solution to sell to government how to resolve said problem. 
• The instigation of the process comes from a supplier, rather than from a public entity - the bid is unsolicited. 
• A public entity does not have an obligation to accept unsolicited bids, but it may if its supply chain management allows.
• It is important that when developing a solution, suppliers take into account government’s plans to integrate the systems, financial, Human Resources and supply chain management, as well as the size of government, and the policies and processes that would need to be supported by the solution