THE SELECT COMMITTEE On FINANCE

Preferential Procurement Policy Framework

Act 5 Of 2000

8-10 September 2003

The Commission on Gender Equality (CGE) is an independent statutory body, established in terms of Section 187, chapter 9 of the Constitution of South Africa, Act 108 of 1996 (hereinafter referred to as the Constitution).

The Commission therefore welcomes the opportunity to present on the Preferential Procurement Policy Framework Act. The CGE has previously made a submission to the Joint Committee on the Preferential Procurement Policy Framework Bill (B66-99). All our recommendations were not accepted by Parliament, as evident from the Preferential Procurement Policy Framework Act. In light of this, our submission will focus on the following issues, which is of primary concern to the Commission:

• The preferencing of Black women
• The Bill as a framework
• Creating access
• An appraisal of the tender point system

The observations made here will be channelled in the form of recommendations prepared with a view to ensuring compliance with international obligations and standards determined by the Beijing Platform for Action (BPA) and the Convention on the Elimination of all forms of Discrimination Against Women (CEDAW), both of which have been agreed to by South Africa.

International obligations: Commission on Gender Equality is aware of pressures on South Africa to agree to international trade regulations, amongst them, the Government Procurement. It is important for South Africa to ensure that while it strives to improve it’s potential to attract international trade, it must ensure that local aims and objectives are not sacrificed in the process. It is important for South Africa to remain faithful to existing obligations.

Amongst these are the obligations under CEDAW and the Beijing Platform for Action:

Strategic objective F1 of the Beijing Platform for Action indicates that women’s economic rights and independence needs to be promoted. This includes access and control over economic resources. In terms of actions that need to be taken, in summary, it compels government to:

• Enact and enforce legislation to guarantee the rights of women
• Undertake legislative and other reforms to give women equal rights to economic resources
• Conduct reviews of national systems to eliminate bias against women
• Seek to ensure that national policies related to international and regional trade agreements do not have adverse impact on women’s economic activities
• Promote gender-sensitive policies to empower women in entrepreneurial fields.

The critical area of women and economic development was highlighted in the Report on the South African Government’s Commitments Arising out of the Fourth World Women’s Conference.

The practice of awarding 90 points to a tender on the basis of price is inflexible and will restrict the degree to which micro and small enterprises owned by women can access the process. The Current legislation has not taken our previous recommendations into account, as we are opposed to this, and raised objections to this, as discussed below. Government action needed the adoption of macro-economic policy and programmes to promote more equitable distribution of opportunities between men and women.

In addition, the programme of action of the International Conference on Population and Development requires:

• Countries should act to empower women and should take steps to eliminate inequalities between men and women as soon as possible by adopting appropriate measures to improve women’s ability to earn income beyond traditional occupations, achieve economic self-reliance and ensure women’s equal access to the labour market, and social security systems.
• Constitutional obligations: South Africa’s Bill of Rights in the Constitution, is explicit in its commitment to promoting equality. S9(2) states that equality includes the full enjoyment of all rights and freedoms. To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination, may be taken.

As the largest buyer in the country, government has a responsibility to ensure that this Act, supports its overall economic objectives, and serves as an instrument, and not merely a framework for attaining those objectives. S2(d)(i) mentions categories of persons, disadvantage by unfair discrimination. This definition fail to take cognisance that discrimination does occur in respect of age. The categories mentioned, are too broad, and should be more narrowly defined. Currently, black men are given preference with regards to race, white women are preferred with regard to gender, and black women fall through the cracks.

In this respect, the preferential procurement of female owned service providers and organisations who have women in senior decision making positions, should be given special mention, as a category to be given preference. Since gender in South Africa takes on a particular apartheid nature, there is inequality between women. Black women did not enjoy the same opportunities with regard of access to education, training, credit and loan facilities, and are thus placed in powerless positions in obtaining tenders.

The omission of a detailed discussion in S2(d)(i), relating to these broad categories of persons historically disadvantaged by unfair discrimination, does not do much for women, especially black women, as they are not mentioned as a preferred category.

This legislation aims at giving effect to S217(3) of the Constitution, by providing a framework for the implementation. Generally, any framework should address the specific issue in a structured and systematic manner, ensuring that the following are encompassed:

• Background and premise
• Primary and Secondary objectives
• A contextual analysis of present barriers
• Proposed methods of obtaining objectives, and translating barriers into enablers

As an operational principle, the information contained in a framework should be focused, and issue orientated as possible. This Act, attempts to provide a framework to the targeted audience, fails to serve as a reliable point of reference. In an attempt to make provisions for flexibility, in terms of how individual government/ public sector departments and structures implement or tailor procurement to their needs. This Act fails to be precise and prescriptive.

This legislation cannot be seen to accomplish, what it was aimed to, i.e. a framework. The discussion points in the framework can be clustered into a single theme: an explanation of the tender award system.

The Preferential Procurement Policy Framework Act provides a passive framework in terms of preferential procurement, and one that fails to address the real issue at hand, i.e. preferential procurement, including the following pivotal categories:

• Preference towards companies owned by women, especially black women
• Preference towards companies with significant numbers of women (specifically black women) in senior decision making positions and industry
• Affirmative / equity practice or black owned companies
• Gender practices i.e. policies that address gendered concerns of employees

Since the initiation of the procurement reform process, there has been significant progress, which therefore needs to be linked to the objectives set out in the growth, employment and redistribution strategy. We are however concerned that the following has been excluded in terms of gender:

• The aim of empowering small, medium and micro enterprises, so that they can access the procurement process which will be directed towards having a spin off in the formalisation of a previously informal sector of the economy. This has particular significance to the development of women and the growth of black female owned business.
• Access and simplification of tender application, which has particular relevance to black women who own companies. Black women who were not engaged in tender process, lack experience in tender processes. By virtue of this, the omission of reference to SMME help desks and gender instruments implies that women will be placed at a less competitive stance in being awarded tenders.
• Affirming marginalized sectors of society in construction projects.
• Empowerment of the majority of South African citizens has to be a focal point of the procurement programme. Women constitute the majority of the population, the majority of the informal sector participants, and the growth rate of female owned macro and small enterprises is the highest. The neglect to prioritise women as a key preferential group in the legislation thus is deemed to have serious negative long-term consequences.

There is no tangible link or integration between the framework, and what has been postulated in the 10-point plan. The following is of particular importance to gender mainstreaming, and the economic empowerment of women:

• Access to tendering information. Tender bidding process has been perceived to be mystifying and complicated, by the majority of black businesswomen owners. There has been a paucity of accurate and easily accessible information regarding the process, as well as the decision-making criteria.
• Tender Advice Centres (TACS) were highlighted as a mechanism to increase the participation of marginalized groups (including women) in the public procurement system. In particular, TACS related to de-mystify the tendering process to targeted groups.
• Packaging into smaller contracts.
• Early payment cycles, which is significant to women owned companies, especially black women who historically do not have access to loans, credit facilities, and financial resources. Preferences / targeting, is the most important relevant issue highlighted in the 10 point plan of this Act. Attention should be drawn to the definitions of disadvantaged, which implies that black women be given priority. This plan focuses primarily on the weighting of price.

The practice of awarding 90 points to tender on the basis of price is inflexible, and will restrict the degree to which micro and small enterprises owned by women can access the process.

Recently, however, a complaint forwarded to the Public Protector (A Private Law Firm : source confidential) has indicated that in one instance a Provincial Department awarded five tenders, four of which were awarded to medium to large companies (one of them being a parastatal) owned either by white males or white males and white females. The fifth contract was awarded to a micro company owned by a black female. It was then found that the former contracts exceeded the allocated budget for the tenders and did not offer any value for money in terms of deliverables versus output. The company owned by black women, offered a lower cost for almost thrice the output of deliverables offered by the other companies. In other instances where black companies (including women) have bid at a higher cost, it has been shown that at a 1,57% cost differential the stage can accommodate preferential practices in terms of contracts relating to non strategic services such as infrastructure, printing, and equipment.

Presently the tender system used by provincial departments places specific emphasis on PDI / Women Equity Ownership in an enterprise (section 3) for contracts that are less than R2m in value and are not construction tenders. A maximum of 88 points is allocated to price, 12 points to equity ownership (where 2 points is allocated to women equity ownership). The point system proposed in the Bill is less complicated (no formula proposed) and tenders would be more likely to adopt this new system to decrease the administrative time spent on PDI / Women Equity Ownership calculations. The economic benefits of including priorities in the preferential procurement of women are exhibited in the Maputo Development Corridor.

A study conducted by the CGE on the Gender Analysis of the Maputo Development Corridor indicates that the affirmative weighting which was given to all blacks and white women, resulted in black women being involved in Strategic Environmental Management plan and the local government study, women managed four of the five projects. Although the study indicated that white women benefited more than black women, the weighting of the contracts in terms of affirmative action proved to be successful in the generation of employment for women. The contracts did not provide for any point allocation for women ownership, thus the majority of contracts as well as almost all the major contracts were awarded to companies owned predominantly by white men.

Interviews with a pool of procurement officers from a select number of government departments, suggest that it is fairly easy to ask companies to reduce cost. Respondents also indicated that if the budget is indicated in the terms of reference, black companies, and in particular companies owned by black women yield meagre profit margins whilst offering greater value for money. This therefore suggests that this segment of the market will grow poorly in real terms.

Research conducted for the South African Institute of Race Relations (Annual Report) indicates that employment among small black owned business is growing. Thus these findings would suggest that whilst employment among black female owned businesses is growing, people employed within these companies will not be remunerated according to market related trends. The point system, as it stands, therefore will have several negative magnifications – both to the targeted businesses but also to the wider community. This implies that whilst the Bill is intended to be a driver of RDP goals, the point system, in terms of its allocation, will actually serve to impede and erode the fulfilment of the RDP objectives.

The point system, as proposed in the Bill exhibits the following flaws:

• An allocation of 90 points for price is not in synergy with the objectives of preferential procurement. Further, companies owned by black women depend to a greater extent on work from government (due to the resistance in using black female owned companies by the private and parastatal sectors) compared to large companies owned by whites. Thus, where the latter type of company may decide not to tender for a particular project because of the cost/budgetary constraints, the former type of company will be placed in a position of having no option but to tender at a low cost with a small or no profit margin. In the long-term then, in the absence of any significant paradigm shift in the private section, companies owned by black women will not be sustainable, leading to increased unemployment and decreased human development growth.
• The allocation of a maximum of 10 points to tenders who comply with specific goals (RDP Principles and contracting with person or categories of persons, disadvantaged by unfair discrimination), intently discriminates against female owned businesses.
• The determination of a maximum implies that the number of points allocated to this provision can be reduced, thus placing less emphasis on gender and socio-economic objectives. The manner in which the Bill renders the priority and provision for preference to secondary status, questions the ability of the Bill to achieve its stated objectives.
• Gender as a primary priority for preference is not included.

In its commitment to implement the preferential Procurement Bill, government needs to facilitate this complex process through a number of ways:

• 45 points should be allocated to value for money and price.
• The remaining points should be allocated as follows:
• Contract / job approach, such as understanding the problem / need / contract specification (20 points)
• Equality in terms of majority black ownership (5 points)
• Equality in terms of majority black women ownership (5 points)
• Equality in terms of women ownership [excludes the above] (2 points)
• Technical expertise and potential expertise such as understanding of contract management, usage or knowledge of latest equipment (15 points)
• Project management, such as human resources available for the project, previous involvement and potential to manage project (10 points)
• This is aimed at eradicating subjectivity. In addition, where the bidding party does not have the required experience, the ability of the party to do the job based on the project plan proposal and answers provided in the selection interviews, should be considered. In some instances, contract should be awarded in tandem. I.e. a large company working in tandem with a smaller company.
• Where companies do not have women equity share holding or ownership, they should lose 5 points. These companies should indicate their engagement in terms of company practices, such as women, and particular black women in senior management positions, training etc. 3 points should be awarded in respect of this. The current point system does not penalise companies that have not made concerted efforts to enhance women, which is a national priority. Therefore such companies should lose points through a negative scoring system.
• Preferencing women in a manner that enable them access to, and success in the procurement process. Priority should be given to black women.
• Multiple benefit effect: obliging prime contractors to engage the services of female owned micro and small business. This will lead to job generation wealth redistribution. This method will ensure that women gain some insight through working in tandem with organisations, of how a particular contract works. Thus expertise is shared.
• A Monitoring and evaluation system should be developed as an adjunct to this legislation. This should include a situational analysis of preferential procurement practices related specifically in terms of preference and tenders awarded to companies owned by women, black women, and companies who have black women in strategic decision making positions. The analysis should be segmented into government (per department, eg. Education, health public works, or by type of tender, eg. Construction, sundry, strategic), parastatal and private. This analysis should be conducted annually. This analysis should include a perceptual audit of companies who are owned by women, particularly black women that applied for tenders. The audit should be segmented according to the successful, and unsuccessful ones.
• Consider tax incentives to motivate big business sector to systematically expand links with outsourcing and sub contracting micro and small business owned by women, especially, black women, in tender contracts. The legislation should be cascaded to sector specific and localised efforts, which are more likely to bear results.
• Explore avenues for ensuring that preferential procurement of women owned business become a priority for parastatal and private sector procurement, as a means of enabling RDP objectives to be reached in both, public and private sectors.

We commend this committee for the initiative to have hearing on this Act. We should strive to ensure that this legislation assists in alleviating poverty, and ensure access for women who have previously been most severely affected by the former apartheid regime.