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The Implications & Implementation of

the New Preferential Procurement
Regulations
PRESENTED BY
HENRY CARELSE
083 300 2804
Emai l : henry.carel se@wi l .co.za
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Topics
• Background and Introduction
• The Constitution & Regulatory Framework
• Treatment of Functionality
• Treatment of Local Production and Content
• Price and Preference Calculations
• Treatment of Consortium & Sub-Contractors
Constitutional Context
“(1) When an organ of state in the national,
provincial or local sphere of government, or
any institution identified in national legislation,
contracts for goods or services, it must do so
in accordance with a system which is
fair, equitable, transparent, competitive
and cost-effective.”
The Constitution of the
Republic of South Africa, 1996
Act 108 of 1996, Section 217
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Hierarchy of Law
PFMA PPPFA PAJA & PAIA
Our courts consider procurement an “Administrative Act”. SABS will
be required to exercise greater administrative care in procurement
CONSTITUTION
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An Organisation’s Procurement Policy
Preferential
Procurement
Regulations
2011
Instructions
Circulars
Guidelines
Revised B-BBEE
Scorecard and
Codes of Best
Practice (Draft
for comment)
B-BBEE
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Preferential Procurement Policy Framework Act
PPPFA
Source: Preferential Procurement Policy Framework Act 2000
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Preferential Procurement Regulations of 2011
Preferential Procurement Regulations of 2001 :
Preferential Procurement Regulations of 2011:
“The purpose is to enhance the participation of Historically Disadvantaged
Individuals (HDIs) and the small, medium and micro enterprises (SMMEs)
in the public sector procurement system.”
Source: Media Release, National Treasury, August 2001
Source: Media Release, National Treasury, June 2011
“The National Treasury has released the revised Preferential Procurement
Regulations, which have been aligned with the aims of the Broad-based
Black Economic Empowerment Act and its associated Codes of Good
Practice. The revised regulations are also in line with government’s
Industrial Policy Action Plan.”
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Revised Preferential Procurement Regulations
First promulgated in 2001
Revised draft issued in August
2009
Enacted 6 June 2011:
• B-BBEE Codes of Good
Practice into Preferential
Procurement Regulations.
Effective 7 December 2011
Schedule 2, 3B and 3D have
exemption to 7 Dec 2012 on all
sub-regulations except “Local
Content” (Regulation 9)
Source: Preferential Procurement Regulations, 2011
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Application
Source: Preferential Procurement Regulations, 2011
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Important Definitions
B-BBEE means broad-based black economic empowerment
as defined in section 1 of the Broad-Based Black Economic
Empowerment Act.
• Extract from B-BBEE Act:
o “black people” is a generic term which means Africans, Coloureds
and Indians
o “broad-based black economic empowerment” means the
economic empowerment of all black people including women,
workers, youth, people with disabilities and people living in rural
areas through diverse but integrated socio-economic strategies….
Source: Preferential Procurement Regulations, 2011
Broad-Based Black Economic Empowerment Act
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B-BBEE Act – Expected Implications of
Amended Bill for Comment
Source: Broad-Based Black Economic Empowerment - Amended Bill
for Comment
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Key Differences 2001 vs. 2011:
80/20 and 90/10 Thresholds
80/20
2001:
• Tenders above R30,000;
and
• up to R500,000
From 7 December 2011:
• Equal to or above R30,000
up to R1,000,000 (all
applicable taxes included)
• All bids, tenders and price
quotations
90/10
2001:
• Tenders above R500,000
From 7 December 2011:
• Above Rand value of
R1,000,000 (all applicable
taxes included)
Source: Preferential Procurement Regulations, 2001
Preferential Procurement Regulations, 2011
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Key Differences 2001 vs. 2011:
Tax Clearance Certificate
Regulations 2001:
• Section 16 – Tax Clearance
Certificate:
• “No contract may be awarded
to a person who has failed to
submit an original Tax
Clearance Certificate from the
South African Revenue
Service (“SARS”) certifying
that the taxes of that person to
be in order or that suitable
arrangements have been
made with SARS.”
Regulations 2011:
• Section 14 – Tax Clearance
• “No tender may be awarded to
any person whose tax matters
have not been declared by the
South African Revenue
Service to be in order”.
Source: Preferential Procurement Regulations, 2001
Preferential Procurement Regulations, 2011
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Key Differences 2001 vs. 2011:
Functionality
Preferential Procurement Regulations 2011:
• Restates, and for the most part does not contradict, the Instructions
(under TR16A) issued in September 2010:
o Preferential Procurement Regulations - Section 4 (5).
– “Tenders that have achieved the minimum qualification score for
functionality must be evaluated further in terms of preference point
system…”
• Public Sector organisations are advised to ensure that their
organisational policies do NOT contradict the September instruction
NOR the Preferential Procurement Regulations of 2011.
Source: Preferential Procurement Regulations, 2011
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Functionality Definition
National Treasury Instruction Note September 2010:
“Functionality” means the measurement according to predetermined norms
of a service or commodity designed to be practical and useful, working or
operating, taking into account quality, reliability, viability and durability of a
service or commodity.
Preferential Procurement Regulations 2011:
"functionality" means the measurement according to predetermined
norms, as set out in the tender documents, of a service or commodity that is
designed to be practical and useful, working or operating, taking into
account, among other factors, the quality, reliability, viability and durability of
a service and the technical capacity and ability of a tenderer;
Source: National Treasury Instruction Note, September 2010
Preferential Procurement Regulations, 2011
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Functionality - Preferential Procurement Regulations 2011
An organ of state must indicate in the invitation to submit a
tender, if that tender will be evaluated on functionality.
The evaluation criteria must be objective.
Clearly specified:
• Evaluation criteria for measuring functionality
• Weight of each criterion
• Applicable values
• Minimum qualifying score for functionality
Tender is not acceptable if it fails to meet minimum qualifying
score
Tenders that qualify, are then evaluated on basis of price and
preference
Source: Preferential Procurement Regulations, 2011
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Key Differences 2001 vs. 2011:
Local Production and Content
An organ of state must, in the case of designated sectors,
where in the award of tenders local production and content is
of critical importance, advertise such tenders with a specific
tendering condition that only locally produced goods,
services or works or locally manufactured goods, with a
stipulated minimum threshold for local production and
content will be considered.
The National Treasury will issue instructions, circulars and
guidelines to all organs of state, with specific reporting
mechanisms to ensure compliance with sub-regulation (1).
Source: Preferential Procurement Regulations, 2011
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Designated Sectors and Thresholds
Sector/Sub-Sector/Industries Local Content
Threshold (min)
Textile, clothing, leather and footwear 100%
Steel Power Pylons & Substation Structures 100%
Rail Rolling Stock 60% to 80%
Canned or Processed Vegetables 80%
Pharmaceutical Products: OSD Tender 70%(volumes)
Set Top Boxes 30%
Bus / Bus Bodies 70% to 80%
Source: SCM Circular dated 20 January 2012 and updated based on Instructions issued 16 July 2012. and 26
September 2012
Department of Trade and Industry www.dti.gov.za/industrial_development/ip.jsp
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Price Scoring
Ps = Points scored for price of bid under consideration
Pt = Rand value of bid under consideration
Pmin = Rand value of lowest acceptable bid submitted
90/10 and 80/20
)
min
min
1 ( 90
P
P Pt
Ps

− =
)
min
min
1 ( 80
P
P Pt
Ps

− =
Source: Preferential Procurement Regulations, 2011, Section
Section 5 and Section 6, Preferential Procurement Regulations 2011
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Key Differences 2001 vs. 2011:
Preference
OUT:
• HDI
• Specified Goals
• SBD / MBDs 6.1 to 6.12
• Weighting of Specified Goals
determined by organisation
• Responsibility for detecting
fraudulent preference claims
is the responsibility of the
organisation
• No preference points for
public companies or tertiary
institutions
IN:
• B-BBEE Status level of
contributor
• Amended 6.1 and 6.2
• Score based on a table
• Designated sectors for
treatment of local production
and content
• Verification agencies role
• Tertiary institutions appointed
through a tendering process
• Tertiary institutions, public
entities, public enterprises
required to have B-BBEE
scorecards
Source: Preferential Procurement Regulations, 2001
Preferential Procurement Regulations, 2011
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Preference Scoring – Historic
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Preference Scoring - 2011
80/20 Preference Point
System
90/10 Preference Point
System
Source: Section 5(2) and Section 6(2), Preferential Procurement Regulations 2011
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Key Differences 2001 vs. 2011:
Sale and Letting of Assets
Sale and letting of assets not included in Regulations 2011:
• Regulation of 2001 outlined:
• There is NO mention of this in the new regulations.
Source: Preferential Procurement Regulations, 2001
Preferential Procurement Regulations, 2011
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Key Differences 2001 vs. 2011:
Treatment of Consortium & Sub-contractors
B-BBEE preference points will ONLY be awarded if the
Consortium also has its own, valid B-BBEE Certificate.
Bidders will no longer be able to claim preference points if
the bidder sub-contracts more than 25% of the work to a
sub-contractor and the subcontractor’s B-BBEE rating is
worse than the bidders rating.
• Exception to that is where the sub-contractor is an Exempt Micro
Enterprise (EME)
Source: Preferential Procurement Regulations, 2011
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