SABC
in re:
SUBMISSIONS ON THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT

1. INTRODUCTION
1.1 The South African Broadcasting Corporation ("the SABC") welcomes this opportunity to make submissions on the Preferential Procurement Policy Framework Act, No.5 of 2000 ('the Procurement Act"), and the Preferential Procurement Regulations (Published in Government Notice No. R.725 in Government Gazette No.22549 of 10 August 2001, in terms of section 5 of the Procurement Act) ("the Regulations"). As an organ of State, the SABC is under a constitutional obligation to develop a procurement system that is fair, equitable, transparent, competitive and cost effective.

1 .2 The SABC is also under an obligation to adopt a preferential procurement policy to provide for categories of preference in the allocation of contracts and the protection and advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

1.3 The SABC's submissions are dealt with below. In order to contextualise the Procurement Act, and its impact on the SABC's business, if and when the Procurement Act becomes applicable for the SABC's business, we deal by way of background with other legislation applicable to the SABC and the impact thereof on the business of the SABC in respect of the SABC's future obligations in terms of the Procurement Act.

2. THE BROADCASTING ACT, NO.4 OF 1999 (as amended)
2.1 The SABC was established in terms of the Broadcasting Act, No.73 of 1976 ("the 1976 Act"). The continued existence of the SABC is provided for in the Broadcasting Act, as amended by the Broadcasting Act, No.64 of 2002 ("the Broadcasting Act"). The provisions of the Broadcasting Act outlined below are only applicable to the SABC as the only public broadcaster in South Africa.

2.2 In terms of section 6 (4) of the Broadcasting Act the SABC must encourage the development of South African expression by providing, in South African official languages, a wide range of programming that:

2.2.1 reflects South African attitudes, opinions, ideas, values and artistic creativity;
2.2.2 displays South African talent in education and entertainment programmes;
2.2.3 offers a plurality of views and a variety of news, information and analysis from a South African point of view;
2.2.4 advances the national and public interest.

2.3 The Broadcasting Act further requires the SABC to provide suitable means for regular inputs of public opinion on its services and to ensure that such public opinion is given due consideration (section 6 (7)).

2.4 Section 6 (8) further requires the SABC to develop a Code of Practice that ensures that the services and personnel comply with:

2.4.1 the constitutional principle of equality;
2.4.2 the equitable treatment of all segments of the South African population;
2.4.3 the constitutional requirement of equitable treatment of all official languages;
2.4.4 the rights of all South Africans to receive and impart information and ideas;
2.4.5 the mandate to provide for a wide range of audience interests, beliefs and perspectives; and
2.4.6 a high standard of accuracy, fairness and impartiality in news and programmes that deal with matters of public interest.

2.5 In terms of section 8 of the Broadcasting Act, the SABC has a duty to further its objectives which, inter alia, are:

2.5.1 to provide, in its public broadcasting services, radio and television programming that informs, educates and entertains;
2.5.2 to be responsive to audience needs, including the needs of the deaf and the blind and account on how to meet those needs;
2.5.3 to commission, compile, prepare, edit, make, print, publish, issue, circulate and distribute, with or without charge, such books, magazines, periodicals, journals, printed matter, records, cassettes, compact disks, video tapes, audio-visual and interactive material, whether analogue or digital;
2.5.4 to establish and maintain libraries and archives containing materials relevant to the objects of the SABC and to make available to the public such libraries and archives with or without charge;
2.5.5 to organise, present, produce, provide or subsidise concerts, shows, variety performances, revues, musical and other productions and performances and other entertainment whether live or recorded in connection with the broadcasting and programme supply services of the SABC or for any purpose incidental thereto;
2.5.6 to nurture South African talent and train people in production skills and carry out research and development for the benefit of audiences; and
2.5.7 to develop and extend its services beyond the borders of South Africa.

2.6 In terms of section 9 of the Broadcasting Act, the SABC must consist of two separate operational divisions, namely a public service division and a commercial service division.

2.7 Section 10 of the Broadcasting Act provides that the public service provided by the SABC must:

2.7.1 make services available to South Africans in all official languages;
2.7.2 reflect both the unity and diverse cultural and multilingual nature of South Africa and all of its cultures and regions to audiences;
2.7.3 strive to be of high quality in all the languages served;
2.7.4 provide significant news and public affairs programming which meets the highest standards of journalism, as well as fair and unbiased coverage, impartiality, balance and independence from government, commercial and other interests;
2.7.5 include significant amounts of educational programmes, both curriculum-based and informal educative topics from a wide range of social, political and economic issues, including, but not limited to, human rights, health, early childhood development, agriculture, culture, religion, justice and commerce and contributing to a shared South African consciousness and identity;
2.7.6 enrich the cultural heritage of South Africa by providing support for traditional and contemporary artistic expression;
2.7.7 strive to offer a broad range of services targeting, particularly, children, women, the youth and the disabled;
2.7.8 include programmes made by the SABC as well as those commissioned from the independent production sector; and
2.7.9 include national sports made by the SABC as well as developmental and minority sports.

2.8 The commercial service division of the SABC must, in the provision of programmes and services, also comply with the obligations outlined in 2.7 above. In addition, the commercial service division must subsidise the public service division and be operated in an efficient manner so as to maximise revenues provided to it by the State (as the sole Shareholder) - section 11(1). In terms of section 10(2), the public service division may draw revenues from advertising and sponsorship, grants and donations, as well as licence fees levied in respect of the licensing of persons in relation to television sets, and may receive grants from the Government.

3. THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA ACT, NO.13 OF 2000 (" ICASA ACT")
3.1 The Independent Communications Authority of South Africa ('ICASA"), an Authority established in terms of the ICASA Act, is charged with the regulation of broadcasting in South Africa. ICASA has, in terms of he ICASA Act, the authority to issue regulations relating to matters connected with broadcasters and requiring broadcasters to adhere to prescribed codes of practice.

3.2 In terms of the ICASA regulations relating to South African Television Content (dated 15 February 2002, which came into effect on 22 August 2003), public television licensees, including the SABC, must ensure that an annual average of 55% (fifty five percent) of their programming consists of South African television content. Where a public television licensee has more than one channel, such as the SABC, the licensee must ensure that at least 55% of its programming on each channel consists of South African television content.

3.3 Regulation 3.3 provides that in complying with its obligations (as set out in paragraph 3~2 above, the licensee must ensure that:

3.3.1 35% of its drama programming consists of South African drama;
3.3.2 80% of its current affairs programming consists of South African current affairs;
3.3.3 50% of its informal knowledge building programming consists of South African informal knowledge building programming;
3.3.4 50% of its documentary programming consist of South African documentary programming;
3.3.5 60% of its educational programming consists of South African educational programming;
3.3.6 55% of its children' programming consist of South African children programming.

3.4 The regulations further provide for requirements to be complied with in relation to public commercial television licensees in relation to their public broadcasting services.

3.5 There are further requirements to be complied with in respect of radio broadcasts which have a far-reaching effect on the SABC's business if regard has to be had to the SABC's future obligations in terms of the Procurement Act.

4.THE PROMOTION OF ADMINISTRATIVE JUSTICE ACT, NO.3 OF 2000 {'PAJA')
4.1 The provisions of PAJA only apply to organs of State insofar as they are exercising "administrative actions".

Administrative action is defined as follows:-'Administrative action" means "any decision taken, or any failure to take a decision by-

(a) an organ of state, when-
(j) exercising a power in terms of the Constitution or a provincial constitution; or
(ii) exercising a public power or performing a public function in terms of any legislation; or

(b) a natural or juristic person, other than an organ of state, when
exercising a public power or performing a public function in terms of an empowering provision,

which adversely affects the rights of any person and which has a direct, external, legal effect".

4.2 The SABC is subject to the provisions of PAJA with regard to the exercise of its public function. PAJA provides, inter alia, that administrators as organs of State are obliged to follow fair procedures and that participants in such procedures are entitled to written reasons as provided for in section 5 of
PAJA.

4.3 The SABC is obliged to act in a reasonable, lawful and procedurally fair manner when considering submitted tenders. This is also in line with the SABC's obligation in terms of the Broadcasting Act.

4.4 The SABC is defined as an organ of State in terms of the Constitution, the Broadcasting Act and ICASA are already following the rules and implementing the policies prescribed in these Acts. In addition, if and when the Procurement Act becomes applicable to the SABC, the SABC will have to comply with the stringent provisions of the Procurement Act whereas other broadcasters do not have similar obligations with which to comply. If the policies are too rigid and too onerous on the SABC, they will be very restricted in their choices and may be unable to produce content which will generate maximum viewers and revenue to sustain the business model of the SABC.

5. THE PUBLIC FINANCE MANAGEMENT ACT, NO.1 OF 1999 ("PFMA")
5.1 The aim of the PFMA is to lay a basis for effective and efficient use of resources in the public sector and to provide for a more effective corporate governance framework.

5.2 The SABC, as a public entity in terms of the PFMA, has a responsibility to ensure that all revenue, expenditure, assets and liabilities are managed efficiently.

6. THE PROCUREMENT ACT AND SABC'S PROCUREMENT POLICIES
6.1 Section 217 of the Constitution provides the basis for the implementation of a procurement policy by all organs of State. Sub-section 1 stipulates:

"When an organ of state in the national, provincial or local sphere of government, or any other 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."

6.2 In February 2000 the Procurement Act was promulgated, giving effect to the provisions of the Constitution.

6.3 In terms of Section 2(1) of the Procurement Act, it is peremptory for all organs of State to determine their preferential procurement policy and to implement such a policy within the framework set out in the Act. The SABC is an organ of State as defined in Section 239(b)(ii) of the Constitution, as it is performing a public function as a national broadcasting corporation under the Broadcasting Act. For the Procurement Act to apply, the Minister has to designate the SABC as an affected organ of State and this designation has to be gazetted as provided for in the Procurement Act.

6.4 The SABC, as the national public broadcaster, is committed to fostering a vibrant broadcasting environment that embraces national priorities and strategies with respect to the development of the local production industry. The SABC has three key priorities with respect to the development and transformation of the local production industry, whilst sirrultaneously balancing its revenue-driven goals and efficiencies, namely:

6.4.1 the promotion of diversity, economic development and international competitors in the local production industry;
6.4.2 black economic empowerment and equity;
6.4.3 skills development (both inside the SABC and within the independent production industry); and
6.4.4 the imperative to improve the overall the efficiency and effectiveness of procurement in order to enhance value for money.
6.5 Pursuant to the provisions of the Broadcasting Act, the SABC must become incorporated as a public entity by 1 October 2003. To this end, the Ministry of Communications and the SABC are in the process of concluding a shareholder's compact which will place obligations on the SABC to, inter alia, implement the four key priorities identified above. This is aimed at ensuring that the SABC fulfils its obligation to implement a procurement policy aimed at fair and competitive procurement processes that will ensure the promotion of the local production industry, black economic empowerment and the development of SMM Es, skills development and efficiency and effectiveness.
6.6 The SABC is thus implementing a preferential procurement policy which falls within the framework of national priorities and strategies and legislation. The SABC's procurement policy provides a framework for decision makers so as to rule out confusion, inconsistency and corruption with regard to the SABC's procurement processes. The SABC is thus using procurement as an instrument of policy to foster sustained growth, economic development and redistribution in the local production industry, to facilitate and encourage the entry of black economic empowerment entities and SMMEs in the industry.
6.7 In addition SABC TV is currently in negotiations with the United Production Initiative (UPI), a grouping of all independent production companies, to finalise a BEE policy on how to award contracts to the industry players.

7. It becomes clear from examining the various applicable legislation that the SABC is subjected to onerous obligations which other broadcasters are not. The SABC will further be restricted by the provisions of the Procurement Act, if and when it becomes applicable to the SABC, which makes it extremely difficult for the SABC to strike a balance between generating good revenue on behalf of the State, and fulfilling its public functions. While the SABC is committed to stimulating the local industry, one of the SABC's main concerns is that it has to ensure that it attracts enough viewership and listenership to enable it to generate revenue. The SABC therefore needs to be able to execute its own judgments in order to produce good quality production work.

8. The SABC provides, amongst others, entertainment, education, information and programming. The core business of the SABC is the acquisition of great and high quality content for television and radio programme broadcasting. The SABC thus needs television and radio programme content. The crucial factor in evaluating such content is an assessment of creativity, entertainment, information value and viewership or listenership tune-in, that is content that will attract viewers and listeners. This means that the SABC has to exercise a value judgment and discretion. There is thus a great need to be able to exercise unfettered discretion in the SABC's procurement processes and, to that extent, the Procurement Act would interfere and thus there is a need for amendments to the Act.

9. PROBLEMS ASSOCIATED WITH THE RIGID APPLICATION OF THE PROCUREMENT ACT - OUR SUBMISSION- THE NEED FOR UNFETTERED DISCRETION SUBJECT TO PROVISIONS AND PRINCIPLES OF PAJA
9.1 The difficulty with the Procurement Act is that it obliges the SABC to implement policies which are so rigid that they do not leave the decision maker with a discretion to consider other factors that may not have been part of the criteria and weightings the decision maker wants to use, but which in any event, viewed objectively, assist the decision-making process.
9.2 Strict compliance with the provisions of the Procurement Act often leads to decisions which are unfavourable to the business objectives of those implementing them
9.3 The following example is used to illustrate the practical implications of a rigid policy such as the one prescribed in the Procurement Act:

- Where a policy states that in evaluating an RFP, the evaluation will be on the basis of a points scoring exercise, in which percentages are allocated for various criteria within the application, one will have watertight compartments that determine to the last detail the percentages that are to be awarded against each category of the set criteria; and
- Assuming that the formula is applied religiously leaving no room for other objective, fair and reasonable considerations such as content quality, increased audiences, appeal to advertising companies, which categories are not within the named criteria and weightings in the legislation and further assuming that in a specific case, notwithstanding the application of the stated weighting or criteria, an entity is of the firm view that there are other factors which if applied would produce a fairer result than the rigid criteria set out in the legislation, that automatically creates problems if the policy has been developed according to the legislation and is couched in terms that are inflexible.
- Therefore though conforming to the formula stated in policy the result would not necessarily be a fair one, and might even be impractical and unsatisfactory.
- It makes sense to have a policy but there must be provision for the exercise of discretion by the decision makers. The policy should be able to state how points are to be scored for each category, what the weightings are going to be and so on, but the decision makers n addition to the stated weightings/point system, should have discretion to consider any other factors which in their view are reasonable, objective and rational, provided the process is transparent and fair There must be room for including defensible factors which may not have been included in the scorecards at the time of formulating policy guidelines, but which can be defended in the event it becomes necessary for example to take account of industry or technology changes which impact on the business.
- Of course the exercise of discretion must in turn meet the standards of reasonableness, objectivity and fairness as set out in PAJA.
- In terms of television programming a rigidly defined process would create problems in respect of commissioning work from producers. For example the SABC can put out tenders for say, drama to be shown at prime time, to be produced at a specific fee per minute which may give rise to possibly five scripts at the right price in response to the tender. However, the quality of the content may be unsuitable for the time the drama is to be flighted on air; or it may be the correct content of the right quality but not suitable for the intended audience; or it may not attract enough advertising to allow for recoupment of the SABC's investment in the programme. Therefore for the SABC the procurement requirements also involve subjective judgments which is the nature of the entertainment business.

9.4 The Preferential Procurement Regulations of 2001 pertaining to the Procurement Act provide in Part 3, Section 17 that the tendering conditions may stipulate specific goals to be attained by the organ of State In question.

9.5 One of the SABC's functions relates to the stimulation and development of the industry. The SABC would therefore need the freedom to exercise its discretion in meeting these aims. If the SABC has to make a choice on the tender submissions, it may want to take such a decision on the basis of factors such as artistic and creative merit and not, for example, price. As a result the system of calculation set out in the Procurement Act would not allow the SABC to do so.

9.6 We submit that there should be an inclusion in this section dealing with specific goals which relates to the development of certain industries and any other goal that is allowed in terms of the Constitution.

9.7 In Minister of Environmental Affairs and Tourism and others v Phambili Fisheries (Pty) Ltd and others, May 2003 (SCA) (unreported), the Director General of the Department of Environmental Affairs and Tourism came to a decision not to take account of the scoring in respect of by catch and offal strategies but rather used some other basis to take the necessary administrative action. The scoring that had been implemented was discarded and preference was given to another basis to come to a decision.

9.8 The two affected companies mounted litigation to challenge the decision of the Director. The High Court set aside the Director's decision on the basis that the Director had ignored the goal that the Act had sought to achieve, namely transformation. The High Court also said that the Director had relied on extraneous criteria such as stability or capital intensity. On appeal, the Supreme Court of Appeal found that the High Court's finding was wrong. The Court continued thus:

"If one reads the Act, it is apparent that it introduces a mandatory requirement to have regard to the redress of certain wrongs of the past And if the Director were to fail to heed this injunction, he would fail in his duty and his decision will be open to attack. But that does not mean that ~e subsection swamps the rest of the Act. Nor does the Act suggest as much. It would be absurd to suggest, for instance, that transformation should be hastened by increasing the TAC drastically, as this would subvert the injunction to conserve marine living resources for both present and future generations, as required by section 2, paragraph (b), of the Marine Living Resources Act and will result ultimately in everybody being the loser"

9.9 With regard to the so-called extraneous criteria, the Court held thus:

"I do not think that considerations such as instability in the industry, undercapitalisation and loss of jobs were extraneous to the proper making of allocations. Some of the objectives or principles named in Section 2(d) are the achievement of economic growth, human resource development, capacity building and employment creation. It would have been irresponsible of the Chief Director to have deprived the industry to any marked extent of the obvious benefits of the large fleets of trawlers, the existing skills and the secure employment offered by the "pioneer" companies."

9.10 The principles stated in the Phambili judgment are equally applicable in the case of the SABC. The SABC should be allowed some discretion in its procurement processes so that it can achieve the objectives set out in section 2 of the Broadcasting Act. Moreover, it should be able to strike a balance between generating revenue on behalf of the State as well as fulfilling its public functions.

9.11 The bottom line is whether the process of coming to a decision is fair or not and whether the decision-maker will be able to give reasons that meet the requirements of fairness and reasonableness.

9.12 In certain instances, the SABC commissions and finances entire productions. In this way the SABC invests in human capital, training programmes and development. By making financial commitments towards local productions, the SABC should be entitled to maximise its profits in producing a product that is of a high quality and will attract viewers.

10. CONCLUSION
10.1 The SABC may experience difficulties with the inflexibility of the system prescribed in the Procurement Act. It is further constrained by its obligation to comply with the administrative law principles set out in PAJA. It thus suggests that some measure of flexibility is introduced in this regard.

10.2 The SABC has a significant role to play in advancing previously disadvantaged individuals and groups. As the largest broadcaster in the country it also has several public functions as set out in the Broadcasting Act (dealt with in paragraph 2 above.) The SABC will be constrained from fulfilling these by the Procurement Act.

10.3 In order to function efficiently and to maximise commercial revenue, the SABC requires some level of discretion. If the SABC complies with PAJA and other regulations and always makes decisions which are procedurally fair, then these further restrictions will only hinder the business aspect of the work of SABC. The SABC is best placed to understand what their viewers will want to watch and should be permitted to exercise such discretion in their best interests.

10.4 The SABC also has to have access to leading edge broadcast technology and IT systems that are used internationally by broadcasters and it also has to keep in touch with international developments in broadcast technology and IT systems. The SABC thus has a relationship with companies such as BBC, ZDF, Tata Consulting, etc., arising from strategic consulting agreements concluded with these companies to obtain access to their information and it uses their services to implement such technology and systems at the SABC. The SABC's policy in relation to these services that are being supplied is to involve BEE companies in such transactions for the purposes of skills transfer, capacity building, technology information sharing and business development.

10.5 The SABC cannot in these circumstances be compelled to seek such technology and IT systems from local sources as such technology and systems are not available locally. The SABC needs to have a discretion in these circumstances. The SABC policy in this respect complies with the spirit of the Constitution and Government policy on BEE development.

10.6 The international - local partnership is the model best suited to the SABC. However, it would be restrictive (budget wise) if the SABC were to comply with any strict spend splits between local and international.