Centralising contracts won't solve the corruption crisis

Inside Government is a newsletter written by Premier Helen Zille.

Inside Government: Centralising contracts won't solve the corruption crisis

On 1 April, National Treasury expects to make the biggest move toward the centralisation of government since the start of our democracy.

In a Supply Chain review update released last week, the Office of the Chief Procurement Officer (OCPO) stated that it will be compulsory for all departments and governments – national, provincial and local – to participate in large, nationally-procured contracts.

This means that municipalities and provinces will not be able to buy many of the goods and services they require, as is presently the case. These will have to be purchased through the office of the Chief Procurement Officer located in National Treasury.

This development went largely unscrutinised in reports – overshadowed mostly by the battle between Finance Minister Pravin Gordhan and SARS Commissioner, Tom Moyane – but the implications are enormous.

For the Western Cape government, the instruction is expected to take effect in two weeks. For local governments the starting date is 1 July.

The concept of a Chief Procurement Officer was first announced by Finance Minister Pravin Gordhan in his 2012 budget speech. He said at the time that the intention was “to improve financial management and help combat corruption”.

The office was given an initial role of “standardising”, “improving” and “monitoring” procurement across government. Now in his second period in office, Minister Gordhan announced a new function to the office’s work in his 2016 budget address – to “centrally negotiate” mega contracts that will be compulsory for all of government to participate in.

A uniform solution is not the answer to widespread corruption and a lack of capacity and political will in many governments. And, of course, there is no guarantee that centralisation will eradicate corruption. Some of the most corrupt procurement processes in the history of our democracy, have been run through central government. One need think no further than the Arms Deal, for example.

Besides concern over the billions lost to corruption each year, Treasury views compulsory contracts as a way to save money through economies of scale, and make up for what they see as a lack of professional procurement practice in many governments.

While we believe that the Minister means well, making participation in national contracts compulsory is unlawful, and beyond what the Constitution defines as  National Treasury’s role.

We informed Minister Gordhan’s predecessor, Nhlanhla Nene, of this in a letter dated 24 November 2015, and wrote to the Ministry again this week.

Our position is that ordering the compulsory participation in national contracts:

• Goes beyond Treasury’s constitutional power, which is limited to setting “norms and standards” (Section 216)
• Exceeds Treasury’s legislative power, to determine a “framework” for procurement by instruction or regulation (as per the Public Finance Management Act)
• Contradicts National Treasury regulation 16A 6.5, which provides for voluntary participation in transversal contracts; and
• Unlawfully usurps the powers of accounting officers in the relevant provinces, as the Chief Procurement Officer would over-ride their constitutional and legal powers, making decisions on their behalf.

In simple language, Treasury’s instruction is unlawful, not binding, and cannot pass constitutional muster.

Here are some of the reasons.

Provinces and municipalities may be able to obtain the required goods and services at a cheaper rate locally, or may have unique needs not serviced by a central contract, or may not be able to efficiently deal with a supplier that is based outside a province.

Small businesses would certainly lose out on hundreds of millions in contracts that would go to only the big players capable of supplying the entire country.

The spending power of government helps local businesses to expand their operations, creating jobs and growing local economies.

If we were to force these businesses to compete on a national level, with major established companies, they will lose every time.

From past experience, we are also mindful of the delays that central procurement can cause to delivery on the frontline.

A prime example is the distribution of medical supplies by the National Department of Health. It has sadly become a regular occurrence for provinces to experience “stock outs” – where hospitals and other healthcare facilities run out of certain medicines in their dispensaries, affecting thousands of patients across South Africa. Similar delays have been experienced in the procurement of IT equipment through the State Information and Technology Agency (SITA) in the past.

And one shudders to think of the risks of the procurement and distribution of all school text books nationally.

Let me be clear, we are not opposed to voluntary participation in national contracts, where our needs can be met and we can piggyback on economies of scale that make it more cost-effective to do so.  We have often done so in the past.

Under any other conditions, we will choose to do the procurement ourselves.

We also have no objection to some other elements of Treasury’s plans – such as an eTenders portal, to save on tender advertising costs, and a supplier database, provided that this is used as a due diligence tool to ensure suppliers meet legal standards, is efficiently administered, and does not increase red tape.

In a situation like ours - where a government has prioritised the building of a capable state; with checks and balances that ensure accountability; and a record that shows respect for the rule of law - we cannot be lumped in with underperforming governments elsewhere.   If we are, our systems will become less efficient and less cost-effective, not more so.

Clean audits and a record of good financial governance are easy references for whether governments can manage their procurement systems.

Public finance legislation already provides Treasury with a means of differentiating between governments that play by the rules, and those that don’t.

Governments that cannot, or will not, manage procurement in the best interests of the public, should be assisted or penalised in a way that is both lawful and effective.

But the most important accountability mechanism in a democracy, is voters who hold corrupt governments to account by putting them out of office at elections.  Until South African voters wake up to this crucial fact of life in a democracy, no amount of centralisation will solve the problem.

We are confident that National Treasury and Minister Gordhan will appreciate the consequences of proceeding with their unlawful instruction from April 1^st.

And we look forward to voters increasing their power to prevent and punish corruption at the ballot box.

Media enquiries:

Michael Mpofu

Spokesperson for Premier Helen Zille

Tel: 021 483 4584

Cell: 071 564 5427

Email: michael.mpofu@westerncape.gov.za