Treasury’s proposed Public Procurement Bill changes the way unreported BEE premiums get paid. Treasury’s submissions to Parliament in favour of the Bill show worse is to come.

At the end of February, the Daily Maverick published a piece I wrote under the headline ‘Treasury must come clean on how much taxpayers spend on BEE premiums’. The arguments in that piece were presented to Parliament by IRR Legal, and Treasury has now responded. But rather than coming clean, Treasury’s responses indicate that what is coming down the pipeline under the Public Procurement Bill (PPB) will make the lack of transparency in public spending even worse.

The Executive Director of Treasury, Willie Mathebula, responded to our last round of comments at the NCOP by saying ‘there is no way that you are not going to pay premiums. The state has to pay premiums.’

For clarity a BEE ‘premium’ is the extra – above value for money – paid in any government contract as a result of BEE ‘preference’ policies. Treasury’s position is clear. Treasury is unambiguous about the fact that BEE ‘premiums’ exist, they have been paid, they are currently being paid, and they will be paid going forward. The question is how much?

‘Now as to what percentage going forward is the state going to pay’, Mathebula said, ‘the criteria for evaluation [are] where you pick up the percentages in terms of the premiums that government has agreed to pay’.

The problem, however, is that contract ‘evaluation’ in the PPB only comes in after contracts have already been ‘set-aside’ in ways that create BEE premiums. This is done by the PPB’s technical detail on ‘set-asides’.

Section 17(1) of the PPB states that a ‘procuring institution must set aside a bid for a category of persons’ limited to those set out in Section 17(3), choosing one of ‘(a) black people; (b) black women; (c) women; (d) black people with disabilities…’ etc. Section 17(5) then requires that after the ‘set-aside’ is applied, remaining contracts ‘must be evaluated’ for ‘terms and conditions’ of the bid which ‘may’ include ‘complementary goals’, which Treasury has suggested might include price.

But every time the ‘set-aside’ has had its stated effect, to exclude the best value-for-money bid on the basis of race, gender, or mental and physical ability among others, before bidding even started the criteria for evaluation at 17(5) would mean checking the price after the BEE premium has already been baked in.

For example, Mathebula has repeatedly pointed out that in the present system, BEE ‘premiums’ are capped at 25% so that if two companies offer the same product at R100,000 and R125,000 respectively, the second could win through a BEE advantage. In that case the tender process would produce a record that makes the premium easy to calculate, by subtracting the best bid from the winning bid.

But if the R100,000 bid is excluded by the PPB ‘set-aside’ system, then no government official would know about it, the tender record would (falsely) indicate that R125,000 is the best price. The ‘premium percentage’, as Mathebula puts it, on such a bid would appear to be 0%, when in fact it would be 25%.

Promises, promises

In a written response to IRR Legal, Treasury promised that after the PPB is passed, Treasury ‘regulations and measures will be introduced to ensure that the state does not pay excessive premiums’ [emphasis added].

But what counts as an ‘excessive’ BEE premium in any given case? What are ‘excessive’ BEE premium percentages in the R1.2 trillion annual procurement budget more generally?

The Zondo Report recommended that ‘maximum value-for-money’ should be unambiguously prioritized. That means R0 BEE premiums. Does Treasury agree that ‘excessive premiums’ are anything above R0?

Clearly not, as the quote at the top by Mathebula indicates. Treasury intends to continue to spend significant amounts on BEE premiums. But the elusive question – how much – is not answered by the promise to pay BEE premiums at some point that is not ‘excessive’.

‘What we will do, we will come up with the evaluation criteria, which will include the price, but we need to publish that’, Mathebula stated. ‘The public will have an opportunity to comment on what we will publish at some point in time, and we will take the views of the public when we come up with whatever is going to be prescribed by the minister.’

This is the closest Treasury came to being transparent about how much it expects to pay out in BEE premiums under the PPB. Not very clear at all.

Transparency vs BEE

Treasury’s failure to respond transparently to the transparency challenge is no accident. IRR Legal submitted that section 216(1) of the Constitution requires ‘both transparency and expenditure control’, and Treasury conceded that this means state officials have a duty to spend public funds only ‘within authorized limits’. But when it comes to BEE premiums, Treasury added a qualifying ‘however’.

‘However, it is submitted that sections 216(1) and 217(1) of the Constitution are qualified by section 217(2) and (3) of the Constitution to address the imbalances of the past’.

This is legalese for the claim that the BEE requires compromising transparency, according to the Constitution. That is a false claim, which exposes the core flaw in Treasury’s thinking.

To translate the claim from legalese to plain language, it helps to recall that 216(1) refers to the requirement for ‘both transparency and expenditure control’, while 217(1) imposes the requirement that government spending must target what the Zondo Report called ‘value-for-money’. On the other hand, 217(2) and 217(3) provide, in Treasury’s interpretation, for BEE. Treasury submitted that the latter are ‘competing objectives’ with the former that must be subject to a ‘trade-off’.

In other words, you can have transparency or Treasury’s version of ‘transformation’, but not both.  The trade-off Treasury is committed to is undermining transparency. It currently refuses to report BEE premiums and it is pushing for PPB, which will make it impossible for the government to even record BEE premiums. All in the name of ‘empowerment’.

Treasury is wrong. Real transformation and transparency are not ‘competing objectives’. Rather, transparency is a tool, and the real transformation of South Africa into a vibrant, non-racial democracy is the purpose of that tool.

The only good thing to come out of this is a little transparency about Treasury’s thinking.


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Gabriel Crouse is a Fellow at the Institute of Race Relations (IRR). He holds a degree in Philosophy from Princeton University.