South Africa is on the brink of significant changes in its procurement landscape with the impending introduction of a new Public Procurement bill. This legislation promises to reshape how businesses engage with government contracts, presenting both challenges and opportunities.
On 22 May 2023, the Public Procurement Bill [B 18-2023] was introduced into Parliament. The primary purpose of the Bill is to create a single piece of national legislation that regulates public procurement, including preferential procurement. This Bill stands to give effect to the entirety of section 217 of the Constitution, so it goes without saying that its introduction is the most significant development in Public Procurement Regulation in South Africa.
Public procurement accounts for a significant portion of government expenditure — nearly a trillion rand and approximately 22% of South Africa’s GDP. It serves as a powerful lever to incentivise government policies across the entire economy and presents an ideal opportunity for government to address dire socio-economic conditions by incentivising companies to engage in behaviours that contribute positively to the goals of national importance.
Treasury’s new requirements propose five approaches for providing preference:
- setting aside contracts for business owned by preferred groups.
- limiting bidders to companies that meet specific criteria, such as BEE ratings/ownership.
- points for preferred groups that potentially allows a bid to win even if it is three times more expensive than a non-preferred group’s bid.
- mandating winning bids to sub-contract part of the contract to business owned by preferred groups.
- designating certain sectors or products exclusively for local manufacturing.
While there is strong support for the proposed Public Procurement Bill, there is equally strong opposition to it. “We saw some chaos when Government Departments and State-Owned Enterprises started to apply arbitrary Black Ownership requirements to tender requests and we were hoping that the new bill would stabilise the ship, but unfortunately it seems it will entrench the arbitrary application of Black Ownership in tenders and will, most likely, result in a new wave of
ineffective joint ventures and fronting deals” says Deon Oberholzer, CEO of the Gestalt Group.
While opinions may vary, what is clear, is that an increased focus in procurement preference for businesses owned by preferred groups, will continue to be an opportunity for some and a challenge for others.
By understanding the implications of the legislation and implementing proactive strategies, businesses can navigate the evolving procurement landscape effectively. As South African companies prepare for the changes ahead, strategic planning and proactive engagement will be essential to thrive in the dynamic business environment.
Gestalt Consult is able to structure the best possible B-BBEE transaction for South African businesses and to structure relevant, legitimate and compliant BEE ownership without the risk of fronting. A well-structured BEE shareholder should ensure its company of all critical considerations such as real empowerment, BEE points, business benefits, costs, risk, shareholder value, sustainability and rules of an eventual exit. Our share purchase model is structured to provide such an optimum balance. We believe in empowering our clients with a thorough understanding of the risks, opportunities, and restrictions associated with B-BBEE transactions. Our process offers valuable insights into the intricacies of such transactions, enabling informed decisions and achieving sustainable success.
Introducing a B-BBEE partner to a business requires careful consideration of various vital factors. To learn more about how you can turn B-BBEE into a strategic asset for your business, contact Gestalt Consult.