The Preferential Procurement Policy Framework Act is the result of section 217 of the Constitution “… and is the foundation on which all government, parastatal and government-owned agencies’ procurement activities are to be based.” Janisch adds that notwithstanding the fact that the Act is
“remarkably short “[…] [it] dictates how the government will go about awarding contracts for goods and services” (Janisch 2006:7). The Preferential Procurement Regulations came into effect in 2001 and provide broader interpretation and application. Since there is no equivalent Act in the pre-PFMA stage, this Act and accompanying regulations will not be included in chapter 5.
The Construction Industry Development Board (CIDB) defines a preferential procurement policy as “… a procurement policy that promotes objectives additional to those associated with the immediate objective of the procurement itself” (Best Practice Guide B1 2004:1). The South African government is not unique in their sourcing objective. Several government entities are not only buyers of goods and services, they are also concerned
with objectives such as the creation of and protection of jobs within their domestic economies (Sherman 1991:331).
“Due to South Africa’s history of discrimination, unfair practices and marginalisation of people, various groups in society were denied the privilege of being economically active within the government procurement system” (Bolton 2007:256). An example of such discrimination is “… by means of government policies that under-funded black primary and secondary education, [resulting in] […] black contractors [having] to compete with fellow countrymen who had a much better state-funded education than they” (Pauw & Wolvaardt 2009:74). “The Act was passed with the aim to encourage uniformity among diverse systems of preferences that existed amongst the different organs of state, to serve as a tool for development, to create advancement for previously disadvantaged individuals (PDI) and to force the procurement process to be more inclusive by allowing competitive advantage for the PDI owned businesses” (Hugo et al 2004:55).
Before implementation of the PPPFA, price was the decisive criteria in the evaluation and award of tenders. The PPPFA introduced a point system as criteria. Bolton provides a practical explanation of the preference point system that must be followed. “The total number of points that may be awarded to contractors is 100, and to ensure that organs of state still obtain the best price for goods and services, more preference points are awarded for lower value contracts and less preference points for higher value contracts” (Bolton 2007:274). In 2009 the following applied: for all contracts with a Rand value equal to or above R30 000 but below R500 000, a maximum of 20 points may be allocated for specific goals. In this instance the lowest acceptable tender must score 80 points for price. For contracts with a Rand value above R500 000, only a maximum of 10 preference points may be allocated for specific goals provided that the lowest acceptable tender scores 90 points for price. The contract must be awarded to the tenderer who scores the highest points unless objective criteria in addition to that, pertaining to specific goals, justify the award to another tenderer (PPFA 2000:2(j)).
The Act provides direction in terms of the goals for which points “may” be awarded; being, contracting with HDIs and implementing the programmes of the Reconstruction and Development Programme as published in Government Gazette No. 16085 dated 23 November 1994. Although the Act in section 2(d) uses the word “may”, the regulations dictate in section 13(1) that HDI must be included as part of the specific goals. The word “may” in this case allows organisations to, for instance, include “youth” as part of their goals.
The CIDP considers “objective criteria” and specific goals to be different concepts. They explain it as follows: “accordingly, socio-economic considerations fall outside the scope of objective criteria. Objective criteria relate to compliance with legislative requirements (for example tax obligations) and commercial (i.e. on technical, quality, capability and capacity issues)” (CIDB 2004:5).
The South African Chamber Of Business (SACOB), in 2003, considered preferential procurement to be a system whereby black and white businesses “pit” against each other (Comments by the South African Chamber of Business (SACOB) on the Preferential Policy Framework Act 5 of 2000, and the Preferential Procurement Regulations 2003:9). The CIDB has another view. According to them “[p]referencing strictly in accordance with the provisions of the PPPFA, i.e. in terms of the points scoring system, is not considered to be unfair discrimination as no person is denied an opportunity to tender and a means is provided for promoting equality” (CIDB 2004:6).
Not all international writers are correctly informed of government’s application of the PPPFA. As part of their introduction to an international publication, Evenett and Hoekman state: “… South Africa has considered instituting a scheme which will favour black entrepreneurs and firms that employ stipulated numbers of black employees. This is part of a sweeping initiative to enhance the economic status of the majority black population after the fall of the apartheid regime” (Evenett & Hoekman 2006:XV). In order not to discredit South African legislation, the researcher considers it as
a necessity to find a forum where the application and aim of the PPPFA can better be explained to not only within the international community but also to our civil society.
“South Africa is not a welfare state and the government cannot foot the social bill for an uneducated and unskilled workforce” (Janisch 2006:1). To address this and other relevant social economic objectives, the Broad-Based Black Economic Empowerment Act 53 of 2003 was passed (hereafter called BBBEEA). This Act does not have a counterpart in the pre-PFMA era, and will therefore not form part of chapter 5.