Ultimately, every bid that goes straight for “value-for-money” with no other points is the most transformative way to spend R1 trillion, because it gets the job done while leaving more change for grants and debt repayment, which boosts the buying power of every rand. That is supposed to be the point, making every rand go further.
This is among the key arguments in my presentation to Parliament on the Public Procurement Bill on behalf of the Institute of Race Relations (IRR), and IRR Legal.
The following is a summary of that presentation.
The Public Procurement Bill will cover almost all the stuff and services that the government buys. This is expected to be around R1 trillion per annum and climbing going forward.
The UN estimates over four million South African children suffer stunted growth due to malnutrition.
SA has the highest, or has tied with the highest, unemployment rate on record in the world.
The SA government is perceived to have the 7th fastest drop in being able to contain corruption in last 25+ years, according to the World Bank. This is the worst drop of any constitutional democracy.
What connects the dots between corruption, unemployment, and the worsening Ramaphosa-era humanitarian crisis? The Zondo Commission answers this question.
State Capture Report
Bigots and superficial international observers blame all South Africa’s problems on the race of those in charge, a bad mistake Zondo Commission avoids. Other superficial analysts blame bad luck or a “few bad apples”. The Zondo Commission avoids this absurdity too. Instead, the Zondo Commission confronts the full extent of the problem – the world’s fastest rise in corruption, worst unemployment rate, and hideous harms to millions – by looking at the laws whose design sets South Africa up to fail.
Pages of this analysis from the Zondo Commission were read to the Finance Standing Committee, but for brevity they can be stated as follows.
Premise 1: if the accounting rules in procurement are confused or self-contradictory then the R1 trillion is impossible to effectively scrutinise after the fact.
Premise 2: if it is impossible to effectively audit the R1 trillion spend then some people are going to take advantage of this in a criminal practice known as corruption.
Premise 3: the current accounting rules are self-conflicting because they set both race preferences and “value-for-money” as a top priority.
Therefore: The current procurement laws set the rainbow republic up to fail.
Recommendations: 1) choose an unambiguous priority; 2) make “value-for-money” the number one priority.
“In the view of the Commission the failure to identify the primary intention of the Constitution is unhelpful and it has negative repercussions when this delicate and complex choice has to be made, by default, by the procuring official.”
“Ultimately in the view of the Commission the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.”
The draft law does not simplify the rules and prioritise value-for-money. Instead, it adds to the number of deviations from value-for-money interests and bars some of the best value companies from even naming their price. It recognises that this will sometimes make genuine procurement “uneconomical”, “impractical”, or even “impossible”. Still, it allows a new Public Procurement Officer to insist on sticking to the “uneconomical” or even “impossible” option rather than just go for value-for-money.
This effectively transplants the long-established Barnard-Nadesan “Principle” – where the ANC government insists that it is literally better to keep a job empty for countless years (starting in the police and fire departments but ultimately extending across the board) rather than promote someone of the “overrepresented” race (starting with white and Indian people but already demonstrably against black and coloured people too) – into the R1 trillion spend.
No one in the Finance Standing Committee, we believe, knows how much race preferencing has already cost the country. We have written to Treasury to ask where that budgeting account is, but have gotten no answer. All that needs to be done is to take every tender where the company awarded did not win on price and subtract the nominal cost of the winning bid from the nominal cost of the best price bid. The difference will be a rough baseline of what extra was paid.
That baseline will not include the cost of corruption, disinvestment, or the loss due to companies that decided not to bid because they knew BEE would make it hopeless for them to do so. Transnet complained that original parts producers don’t even bother bidding to sell them rail tracks, so they are forced to buy from inflated middlemen. That cost won’t even show up in the baseline, which is guaranteed to be a massive underestimate. But it will be a start.
We want to know how much that baseline cost has been since race preferencing was implemented decades ago. Without that baseline cost figure neither the law makers nor the public can seriously be said to be making well-informed decisions on how the roughly R1 trillion is spent.
The current system benefits some connected, rich white, Indian, coloured, and black people, who milk the trillion. Independently rich people of all races can buy their way out of the worst negative consequences of the world’s worst education system (bang for buck), burning government buildings, deathtrap mental hospitals etc. Those most harmed are the working poor and unemployed, who are disproportionately black.
Those who insist on using race as a proxy for disadvantage should recognise the US system, as articulated by US Supreme Court Justice Sonya Sotomayor, of using race as a “tie-breaker” only when value-for-money is already equal between bidders. The Institute has long recommended EED, a non-racial points system that boosts companies that reduce poverty. Ultimately, every bid that goes straight for “value-for-money” with no other points is the most transformative way to spend R1 trillion, because it gets the job done while leaving more change for grants and debt repayment, which boosts the buying power of every rand. That is supposed to be the point, making every rand go further.
Right now, the rand does not go far enough for children to eat. The child of a black billionaire is legally treated as “disadvantaged”, while millions of starving children are treated as if they are going to benefit from inflated railway track contracts. These lies heap the R1 trillion like a mountain that a few sit atop. To make the money go further, the R1 trillion spending law must change to put value-for-money first.